EXHIBIT 10.1

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT

OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE

DISPOSED OF UNLESS REGISTERED UNDER THAT ACT

OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

NEPHROS, INC.

Senior Secured Note

Due: May 12, 2014

Nephros, Inc., a Delaware corporation (the “ Company ”), for value received, hereby promises to pay to the order of LAMBDA INVESTORS LLC (the “ Lender ”) or its registered assigns, the principal sum of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS And No Cents ($1,500,000) on or before May 12, 2014, and to pay interest (computed on the basis of a 360-day year consisting of twelve 30-day months) from the date hereof on the unpaid principal amount hereof at the rate of 12% per annum (but in no event in excess of the maximum non-usurious rate of interest permitted under applicable law), payable at the time the principal amount hereof shall have become due and payable, whether at maturity or by acceleration or otherwise, and thereafter at the rate of 16% per annum on any overdue principal amount and (to the extent permitted by applicable law) on any overdue interest until paid (but in no event in excess of the maximum non-usurious rate of interest permitted under applicable law).

All payments of principal and interest on this Note shall be in such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts.

If any payment on this Note is due on a day which is not a Business Day, it shall be due on the next succeeding Business Day. For purposes of this Note, “ Business Day ” shall mean any day other than a Saturday, Sunday or a legal holiday or day on which banks are authorized or required to be closed in New York.

1.           Definitions . As used herein, the term “ Note ” shall mean this Senior Secured Note Due May 12, 2014 and any Senior Secured Note or Notes subsequently issued upon exchange or transfer hereof, and shall include all amendments, supplements and other modifications thereto. The term “ Security Documents ” shall mean (a) the Security Agreement by and between the Company and the Lender that was executed and delivered on the date of the original issuance of this Note, including all amendments, supplements and other modifications thereto, (b) the Intellectual Property Security Agreement by and between the Company and the Lender that was executed and delivered on the date of the original issuance of this Note, including all amendments, supplements and other modifications thereto, and (c) all other documents, agreements and instruments now or hereafter executed and delivered by the Company or any other person or entity (each, a “ Person ”) as security for the payment or performance of the Note, including all amendments, supplements and other modifications thereto.

2.           Transfer, Etc. of Note . The holder of this Note may transfer this Note or sell participations herein without the consent of the Company. The holder shall provide the Company with written notice of any transfer of this Note, which notice shall include the name and address of the transferee, and such other identification and other verification as the Company may reasonably request, whereupon the Company shall register the transferee as the owner and holder of this Note for all purposes.

3.           Loss, Theft, Destruction or Mutilation of Note . In the case of any loss, theft or destruction of this Note, upon receipt of an affidavit of loss from the holder thereof, or, in the case of mutilation of this Note, upon surrender and cancellation of this Note, the Company will make and deliver, in lieu of this Note, a substitute Note of like tenor and unpaid principal amount and dated as of the date hereof.

4.           Persons Deemed Owners; Holders . The Company may deem and treat the person in whose name this Note is registered as the owner and holder of this Note for the purpose of receiving payment of principal of and interest on this Note and for all other purposes whatsoever, whether or not this Note shall be overdue. The terms “ Noteholder ” or “ holder ,” as used herein, shall be deemed to mean the person in whose name the Note is registered as aforesaid at such time.

5.           Prepayments .

(a)         Optional Prepayment . Upon notice given as provided in Section 5(c), the Company may, at its option, prepay this Note, without premium or penalty, as a whole at any time or in part from time to time in principal amounts which shall be integral multiples of $1,000, together with any accrued and unpaid interest thereon through the date of such prepayment.

(b)        Mandatory Prepayments .

(i)           If on any date the Company or any subsidiary shall receive any Cash Proceeds (X) from the Rights Offering (as defined in Section 7(n), below), (Y) from any other issuance of debt or equity securities of the Company or any subsidiary (other than cashless exercises of warrants or options), or (Z) from any issuance or incurrence of any other Indebtedness (excluding any Indebtedness incurred in accordance with Section 7(j)), an amount equal to 100% of the Cash Proceeds therefrom shall be applied on the date of such receipt, issuance or incurrence toward the prepayment of this Note and any other amounts payable under the Loan Documents (as defined below) until all such amounts have been paid in full. The provisions of this paragraph do not constitute a consent to the incurrence of any Indebtedness not permitted by Section 7(j).

(ii)          If on any date the Company or any of its subsidiaries shall receive Cash Proceeds from any Disposition of assets outside of the ordinary course of business, then on the date of receipt by the Company or such subsidiary of such Cash Proceeds, an amount equal to the amount of such Cash Proceeds shall be applied on the date of such receipt towards the prepayment of this Note and any other amounts payable under the Loan Documents until all such amounts have been paid in full. The provisions of this paragraph do not constitute a consent to the consummation of any Disposition not permitted by Section 7(i).

(iii)         In connection with any mandatory prepayment pursuant to this Section 5(b), the Company shall give notice as provided in Section 5(c).

For purposes of this Note:

“ Cash Proceeds ” means, with respect to the Rights Offering, any other issuance of debt or equity securities of the Company or any subsidiary, any other issuance or incurrence of any Indebtedness by the Company or any subsidiary, or any Disposition, the cash proceeds received by the Company and its subsidiaries in connection with such transaction (including any cash received in respect of non-cash proceeds, but only as and when received).

“ Disposition ” means the sale, assignment, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by the Company or any of its subsidiaries, including any sale, assignment, transfer or other disposal, with or without recourse, of any intellectual property or any rights and claims associated therewith. “ Dispose of ” has a corresponding meaning.

(c)           Notice of Prepayment . The Company shall give written notice of any prepayment of this Note or any portion hereof pursuant to Section 5(a) or Section 5(b) not less than five (5) nor more than sixty (60) days prior to the date fixed for such prepayment. Such notice of prepayment and all other notices to be given to the holder of this Note shall be given by registered or certified mail to the Person in whose name this Note is registered at its address designated on the register maintained by the Company on the date of mailing such notice of prepayment or other notice. Upon notice of prepayment being given as aforesaid, the Company covenants and agrees that it will prepay, on the date therein fixed for prepayment, this Note or the portion hereof, as the case may be, so called for prepayment.

(d)           Allocation of All Payments . Payments hereunder shall be applied first to unpaid fees and expenses, next to accrued and unpaid interest, and thereafter to the unpaid principal of this Note.

(e)           Interest After Date Fixed for Prepayment . If this Note or a portion hereof is called for prepayment as herein provided, whether optional or mandatory, this Note or such portion shall cease to bear interest on and after the date fixed for such prepayment unless, upon presentation for such purpose, the Company shall fail to pay this Note or such portion, as the case may be, in which event this Note or such portion, as the case may be, and, so far as may be lawful, any overdue installment of interest, shall bear interest on and after the date fixed for such prepayment and until paid at the rate per annum provided herein for overdue amounts.

(f)           Surrender of Note; Notation Thereon . Upon any prepayment of a portion of the principal amount of this Note, the holder hereof, at its option, may require the Company to execute and deliver at the expense of the Company (other than for transfer taxes, if any), upon surrender of this Note, a substitute Note registered in the name of such Person as may be designated by such holder for the principal amount of this Note then remaining unpaid, dated as of the date hereof, or may present this Note to the Company for notation hereon of the payment of the portion of the principal amount of this Note so prepaid.

6.            Representations and Warranties . The Company hereby represents and warrants that:

(a)           Organization, Qualifications and Corporate Power . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to do business as a foreign corporation and in good standing in each jurisdiction in which it is required to be so licensed or qualified with respect to the operations of its business, except where the failure to be so licensed or qualified would not have a material adverse effect on the business, assets, results of operations or condition (financial or other) of the Company and its business. The Company has all requisite power and authority to own, operate and lease its assets and to carry on its business as it is now being conducted and to execute and deliver this Note and the Security Documents, and to perform its obligations hereunder and thereunder.

(b)           Authorization of Agreements, Etc . The execution and delivery by the Company of this Note and Security Documents, and the performance by the Company of its respective obligations hereunder and thereunder have been duly authorized by all requisite corporate action.

(c)           Validity . This Note and the Security Documents have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws from time to time in effect affecting the enforcement of creditors’ rights generally and to general equity principles.

(d)           Non-Contravention . The execution, delivery and performance by the Company of this Note and the Security Documents will not: (i) violate any provision of any law, any order of any court or other agency of government or permits currently in effect to which the Company is subject; (ii) result in a breach of, or constitute a default under, the provisions of any indenture, loan or credit agreement or any other agreement, lease or instrument to which the Company is subject or by which it or any of its assets is bound; or (iii) result in, or require, the creation or imposition of any lien, security interest, mortgage, pledge, charge or encumbrance of any nature whatsoever (each, a “ Lien ”) with respect to any of the assets of the Company or any of its subsidiaries, except as created pursuant to the Security Documents.

(e)           Governmental Approvals . No registration or filing with, or consent or approval of, or other action by, any Federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance of the Security Documents or the issuance, sale and delivery of this Note, except as contemplated by the Security Documents.

7.            Covenants Relating to the Note . The Company covenants and agrees that so long as the Note shall be outstanding:

(a)           Maintenance of Office . The Company will maintain an office or agency in such place in the United States of America as the Company may designate in writing to the registered holder of this Note, where this Note may be presented for registration of transfer and for exchange as herein provided, where notices and demands to or upon the Company in respect of this Note may be served and where this Note may be presented for payment. Until the Company otherwise notifies the holder hereof, said office shall be the principal office of the Company located at 41 Grand Avenue, River Edge, New Jersey 07661.

(b)           Payment of Taxes . The Company will promptly pay and discharge or cause to be paid and discharged, before the same shall become in default, all material taxes and assessments imposed upon the Company or any of its subsidiaries or upon the income and profits of the Company or any of its subsidiaries, or upon any property, real, personal or mixed, belonging to the Company or any of its subsidiaries, or upon any part thereof by the United States or any State thereof, as well as all material claims for labor, materials and supplies which, if unpaid, would become a Lien upon such property or any part thereof; provided , however , that neither the Company nor any of its subsidiaries shall be required to pay and discharge or to cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as both (i) the Company has established adequate reserves for such tax, assessment, charge, levy or claim and (ii) the Company or a subsidiary shall be contesting the validity thereof in good faith by appropriate proceedings.

(c)           Corporate Existence . The Company will do or cause to be done all things necessary and lawful to preserve and keep in full force and effect (i) its corporate existence and the existence of each of its subsidiaries and (ii) the material rights and franchises of the Company and each of its subsidiaries under the laws of the United States or any state thereof, or, in the case of subsidiaries organized and existing outside the United States, under the laws of the applicable jurisdiction; provided , however , that, subject to Section 7(i) below, nothing in this paragraph (c) shall prevent the abandonment or termination of any rights or franchises of the Company, or the liquidation or dissolution of, or a Disposition (whether through merger, consolidation, sale or otherwise) of all or any substantial part of the property and assets of, any subsidiary or the abandonment or termination of the existence, rights and franchises of any subsidiary if such abandonment, termination, liquidation, dissolution or Disposition is, in the good faith business judgment of the Company, in the best interests of the Company and not materially disadvantageous to the holder of this Note.

(d)           Maintenance of Property . The Company will at all times maintain and keep, or cause to be maintained and kept, in good repair, working order and condition (reasonable wear and tear excepted) all significant properties of the Company and its subsidiaries used in the conduct of the business of the Company and its subsidiaries, and will from time to time make or cause to be made all needful and proper repairs, renewals, replacements, betterments and improvements thereto necessary so that the business of the Company and its subsidiaries may be conducted at all times in the ordinary course consistent with past practice.

(e)           Insurance . The Company will, and will cause each of its subsidiaries to, (i) keep adequately insured, by financially sound and reputable insurers, all property of a character usually insured by corporations engaged in the same or a similar business similarly situated against loss or damage of the kinds customarily insured against by such corporations and (ii) carry, with financially sound and reputable insurers, such other insurance (including without limitation liability insurance) in such amounts as are available at reasonable expense and to the extent believed advisable in good faith business judgment of the Company.

(f)           Keeping of Books . The Company will at all times keep, and cause each of its subsidiaries to keep, proper books of record and account in which proper entries will be made of its transactions in accordance with generally accepted accounting principles consistently applied.

(g)           Transactions with Affiliates . Except for transactions with Lender and its affiliates, the Company shall not enter into, and shall not permit any of its subsidiaries to enter into, any transaction with any of its or any subsidiary’s officers, directors, employees or any person related by blood or marriage to any such person or any entity in which any such person owns any beneficial interest, except for normal employment arrangements, benefit programs and employee incentive option programs on reasonable and customary terms.

(h)           Notice of Certain Events . The Company shall, immediately after it becomes aware of the occurrence of (i) any Event of Default (as hereinafter defined) or any event which, upon notice or lapse of time or both, would constitute such an Event of Default, or (ii) any action, suit or proceeding at law or in equity or by or before any governmental instrumentality or agency which could reasonably be expected to materially impair the right of the Company to carry on its business substantially as then conducted, or could reasonably be expected to have a material adverse effect on the properties, assets, financial condition, operating results or business of the Company and its subsidiaries taken as a whole, give notice to the holder of this Note, specifying the nature of such event.

(i)           Consolidation, Merger and Sale . The Company shall not, and shall not permit any of its subsidiaries to, consolidate or merge with or into, or sell or otherwise Dispose of all or any material portion of its property or the property of the Company and its subsidiaries taken as a whole in one or more related transactions to, any other Person or Persons.

(j)           Limitation on Indebtedness and Disqualified Stock . The Company shall not, and shall not permit any of its subsidiaries to, (i) incur or permit to remain outstanding any indebtedness for money borrowed (“ Indebtedness ”), except (A) the Note, (B) Indebtedness existing on the date of original issuance of this Note (or, if applicable, the earliest predecessor Note) and described in the Company’s public SEC filings prior to such date, and (C) such Indebtedness as may be mutually agreed upon by the Company and the holder of the Note, or (ii) issue any capital stock (“ Disqualified Stock ”) of the Company or any of its subsidiaries which by its terms, or upon the happening of any event, matures, or is mandatorily redeemable, whether pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to May 12, 2014. The term “Indebtedness” shall not include trade or other payables of or extensions of credit to the Company to or by the Company’s vendors in the ordinary course of business.

(k)           Restricted Payments . The Company shall not, and shall not permit any of its subsidiaries to: (i) declare or pay any dividends on, or make any other distribution or payment on account of, or redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of any class of stock of the Company or any option, warrant or other security, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash, property or in obligations of the Company or any of its subsidiaries, except for (Y) distributions of shares of the same class of stock pro rata to all holders of shares of a class of stock and (Z) dividends, distributions or payments by any subsidiary to the Company or to any wholly-owned subsidiary of the Company, or (ii) make any payments of principal of, or retire, redeem, purchase or otherwise acquire any Indebtedness other than the Note (such declarations, payments, purchases, redemptions, retirements, acquisitions or distributions being herein called “ Restricted Payments ”).

(l)           Limitation on Liens . The Company shall not, and shall not permit any of its subsidiaries to, directly or indirectly, create, incur, assume or otherwise cause or suffer to exist any Liens on any asset now owned or hereafter acquired, or on any income or profits therefrom or assign or convey any right to receive income therefrom, except for (i) liens for current taxes not yet due, (ii) landlord’s liens, (iii) purchase money liens, (iv) workman’s, materialman’s, warehouseman’s and similar liens arising by law or statute, and (v) liens in favor of the Noteholder pursuant to the Security Documents.

(m)           Inspection of Property . The Company shall permit the holder hereof to visit and inspect any of the properties of the Company and any subsidiaries and their books and records and to discuss the affairs, finances and accounts of any of such entities with the principal officers of the Company and such subsidiaries and their independent public accountants, all at such reasonable times and as often as such holders may reasonably request.

(n)           Rights Offering . The Company shall undertake an SEC registered rights offering to raise $2.75 million from its existing common stock shareholders and warrantholders (the “ Rights Offering ”) on the following terms:

(i)           All existing shareholders and warrantholders of the Company shall be eligible to participate in the Rights Offering pro rata based upon their pro rata equity interest in the Company, calculated on an as converted to common stock, fully-diluted basis (but excluding options).

(ii)          The Rights Offering shall be for the right to purchase up to an aggregate of 9,166,667 new shares of common stock at a price of $0.30/share.

(iii)         The term of all the Company’s existing warrants held by the Lender (the “ Lender Warrants ”) will be amended to expire on the five year anniversary of the closing of the Rights Offering.

(iv)         To the extent that after the closing of the Rights Offering there still remain unsubscribed shares, the Noteholder shall have the right, at its option, to purchase any or all such remaining unsubscribed shares within ten (10) days of the closing of the Rights Offering.

(v)          The Company shall have obtained shareholder approval, or provided evidence to Lender, which Lender determines in its discretion is sufficient, that such shareholder approval is not required, for the authorized shares of common stock required in connection with the Rights Offering and for the transactions contemplated thereby.

(vi)         The Company shall have obtained board of directors and SEC approval of a registration statement for the issuance of shares of common stock in connection with the Rights Offering.

(vii)       The Lender’s exercise of its basic subscription privilege in the Rights Offering shall be subject to the Company’s satisfaction of its obligations under this clause (n) (other than under subclause (x) which obligations arise after the closing of the Rights Offering) .

(viii)       The Company shall have received all other required approvals and consents.

(ix)          The definitive agreements relating to the Rights Offering shall include customary representations and warranties by the Company and customary covenants satisfactory to the Noteholders.

(x)           The Company shall file with the SEC a registration statement on Form S-1 or another appropriate form in accordance herewith and with the Securities Act of 1933, as amended (except if the Company is then eligible to use Form S-3, such registration statement shall be on Form S-3) covering the resale by the Noteholders of the common stock issued in connection with the Rights Offering (the “ Registration Statement ”) and shall use its commercially reasonable efforts to cause the Registration Statement to be declared effective within ninety (90) calendar days after the filing date, or within one-hundred and eighty (180) calendar days after the filing date in the event the Registration Statement is reviewed by the SEC. The Company shall use its commercially reasonable efforts to keep the Registration Statement continuously effective until such time as all the securities have been sold thereunder or the securities may be sold without restriction under applicable securities laws, subject to normal and customary blackout periods. The registration rights specified in this clause (xi) shall be embodied in a registration rights agreement in customary form between the Company and the Noteholders.

(o)           Fees & Expenses . Without limitation of the last sentence of Section 10, the Company shall pay the Lender in respect of the legal fees and other expenses of the Lender in connection with the issuance of this Note and the Rights Offering, a payment of $75,000. Such amounts shall be due and payable in full, in cash, upon the consummation of the Rights Offering or, if earlier, upon the maturity of any principal of this Note (whether at stated maturity, at a date fixed for optional or mandatory prepayment, upon acceleration pursuant to Section 9 or otherwise), and, if then unpaid, shall thereafter constitute additional principal amounts under this Note, bearing interest at the rate provided herein for overdue principal amounts.

8.           Modification by Holders; Waiver . The Company may, with the written consent of the holder of this Note, modify the terms and provisions of this Note or the rights of the holder of this Note or the obligations of the Company hereunder, and the observance by the Company of any term or provision of this Note may be waived with the written consent of the holder. Notwithstanding the foregoing, no amendment, modification, or waiver of any provision of this Note will be valid unless the same is in a writing expressly stating that the intent of such writing is to amend, modify or waive a right under this Note.

Any such modification or waiver shall apply and shall be binding upon each future holder of this Note and upon the Company, whether or not such Note shall have been marked to indicate such modification or waiver, but any substitute Note issued thereafter shall bear a notation referring to any such modification or waiver.

9.           Events of Default . If any one or more of the following events, herein called “ Events of Default ,” shall occur (for any reason whatsoever, and whether such occurrence shall, on the part of the Company or any of its subsidiaries, be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of a court of competent jurisdiction or any order, rule or regulation of any administrative or other governmental authority) and such Event of Default shall be continuing:

(i)           default shall be made in the payment of the principal of this Note when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment or repurchase (including default of any optional or mandatory prepayment in accordance with the requirements of Section 5) or by acceleration or otherwise; or

(ii)          default shall be made in the payment of any installment of interest on this Note according to its terms when and as the same shall become due and payable; or

(iii)         default shall be made in the prompt observance or performance of any covenant, condition or agreement on the part of the Company contained herein in Section 7, and such default shall continue for ten (10) days after written notice thereof; or

(iv)         default shall be made in the prompt observance or performance of any other covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof, and such default shall continue for ten (10) days after written notice thereof, specifying such default and requesting that the same be remedied; or

(v)          any representation or warranty made by or on behalf of the Company herein or in any Security Document shall prove to have been false or incorrect in any material respect on the date on or as of which made; or

(vi)         default shall be made in the performance of or compliance with any term contained in any fee letter related to the Note, any Security Document or any other document, instrument or agreement (collectively, the “ Loan Documents ”) delivered by the Company or any subsidiary in order to grant or perfect Liens on any assets thereof as security for all or any of the obligations of the Company under the Loan Documents, or to govern or evidence any such obligations, and such default shall continue for ten (10) days after written notice thereof; or

(vii)        the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of the Company or any of its subsidiaries in any involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar laws, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or any of its subsidiaries for any substantial part of any of their property or ordering the winding-up or liquidation of any of their affairs and the continuance of any such decree or order unstayed and in effect for a period of ninety (90) consecutive days; or

(viii)       the commencement by the Company or any of its subsidiaries of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar laws, or the consent by any of them to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or any of its subsidiaries for any substantial part of any of their property, or the making by any of them of any general assignment for the benefit of creditors, or the failure of the Company or of any of its subsidiaries on a regular or continuing basis to pay its debts as such debts become due, or the taking of corporate action by the Company or any of its subsidiaries in furtherance of or which might reasonably be expected to result in any of the foregoing; or

(ix)          a default or an event of default as defined in any instrument evidencing or under which the Company or any of its subsidiaries has outstanding at the time any Indebtedness in excess of $100,000 in aggregate principal amount shall occur, and as a result thereof the maturity of any such Indebtedness shall have been, or at the option of the holder thereof could be, accelerated so that the same shall have become or could be declared to be due and payable prior to the date on which the same would otherwise have become due and payable; or

(x)           final judgment (not reimbursed by insurance policies of the Company or any of its subsidiaries) for the payment of money in excess of $100,000 shall be rendered against the Company or any of its subsidiaries and the same shall remain undischarged for a period of thirty (30) days during which execution shall not be effectively stayed; or

(xi)          any Loan Document shall, at any time, cease to be in full force and effect (other than by reason of a release thereunder in accordance with the terms hereof or thereof, the satisfaction in full of the obligations thereunder or any other termination of such Loan Document in accordance with the terms hereof or thereof) in any material respect, shall be declared null and void, or the validity or enforceability thereof shall be contested in writing by the Company or any subsidiary, or the holder of this Note shall not have or shall cease to have a valid security interest in any collateral purported to be covered thereby, perfected and with the priority contemplated by the Loan Documents;

then any holder may, at its option, by a notice in writing to the Company declare the Note to be, and the Note shall thereupon be and become, immediately due and payable together with interest accrued thereon, without diligence, presentment, demand, protest, notice of acceleration, notice of intent to accelerate or further notice of any kind, all of which are expressly waived by the Company to the extent permitted by law; provided , however , that upon the occurrence of an Event of Default under paragraphs (vii) or (viii) above, the Note shall automatically become due and payable, together with interest accrued thereon, without any further action of the holder.

At any time after any declaration of acceleration has been made as provided in this Section 9, the holder of the Note may, by notice to the Company, rescind such declaration and its consequences with respect to the Note, provided , however , that no such rescission shall extend to or affect any subsequent default or Event of Default or impair any right consequent thereon.

10.          Suits for Enforcement . In case any one or more of the Events of Default shall happen and be continuing (subject to any applicable cure period expressly set forth herein), the holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law and/or by other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note, or may proceed to enforce the payment of this Note or to enforce any other legal or equitable right of the holder of this Note.

In case of any default under this Note, the Company will pay to the holder hereof collection costs and attorneys’ fees, to the extent actually incurred.

11.          Remedies Cumulative . No remedy herein conferred upon the holder of this Note is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise.

12.          Remedies Not Waived . No course of dealing between the Company and the holder of this Note nor any delay on the part of the holder hereof in exercising any rights hereunder shall operate as a waiver of any right of the holder of this Note.

13.          Successors and Assigns . All the covenants, stipulations, promises and agreements in this Note contained by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not.

14.          Notices . All notices, requests, demands and other communications required or permitted under this Note shall be in writing (which shall include notice by facsimile transmission) and shall be deemed to have been duly made and received when personally served, or when delivered by Federal Express or a similar overnight courier service, expenses prepaid, or by facsimile communications equipment, addressed as set forth below:

If to the Lender:

Lambda Investors LLC

c/o Wexford Capital LP

Wexford Plaza

411 West Putnam Avenue

Greenwich, CT 06830

Attn: Arthur Amron

Tel: (203) 862-7012

Fax: (203) 862-7312

If to the Company:

Nephros, Inc.

Attn: John Houghton, President and CEO

41 Grand Ave.

River Edge, NJ 07661

Tel: (201) 343-5202

Fax: (201) 343-5207

Any party may alter the address to which communications are to be sent by giving the other parties written notice of such change of address in conformity with the provisions providing for the giving of notice.

15.          GOVERNING LAW . THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCLUDING THE CONFLICTS OF LAWS RULES THEREOF.

16.          Submission To Jurisdiction; Waivers; WAIVER OF JURY TRIAL . THE COMPANY HEREBY IRREVOCABLY, UNCONDITIONALLY AND WITH ADVICE OF COUNSEL:

(a)           submits for itself and its property in any legal action or proceeding relating to this Note and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the courts of the State of Delaware, the courts of the United States of America for the District of Delaware, and appellate courts from any thereof;

(b)           consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c)           agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company at its address set forth in Section 7(a) or at such other address of which the holder shall have been notified pursuant thereto;

(d)           agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law; and

(e)           WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS NOTE OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM RELATED TO ANY OF THE FOREGOING.

17.          Limitation on Interest . It is the intention of the parties hereto that the Company, the Lender and each other holder shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby or by any other Loan Document would be usurious as to any holder under laws applicable to it, then, in that event, notwithstanding anything to the contrary in this Note or any other Loan Document or any agreement entered into in connection with or as security for this Note, it is agreed as follows: (i) the aggregate of all consideration that constitutes interest under law applicable to any holder that is contracted for, taken, reserved, charged or received by the holder under this Note or any other Loan Document or agreements or otherwise in connection with this Note shall under no circumstances exceed the maximum amount allowed by such applicable law, any excess shall be canceled automatically and if theretofore paid shall be credited by the holder on the principal amount of the Note (or, to the extent that the principal amount of the Note shall have been or would thereby be paid in full, refunded by the holder to the Company); and (ii) in the event that the maturity of this Note is accelerated by reason of any Event of Default under this Note or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the holder may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Note or otherwise shall be canceled automatically by the holder as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by the holder on the principal amount of the Note (or, to the extent that the principal amount of the Note shall have been or would thereby be paid in full, refunded by the holder to the Company). All sums paid or agreed to be paid to the holder for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to the holder, be amortized, prorated, allocated and spread throughout the full term of the Note until payment in full so that the rate or amount of interest on account of the Note does not exceed the maximum amount allowed by such applicable law.

18.          Entire Agreement . This Note, together with the Security Agreement and the Intellectual Property Security Agreement referred to in Section 1 hereof (collectively, the “ Closing Date Documents ”), constitute the final agreement between the Company and the Lender. The Closing Date Documents are the complete and exclusive expression of the parties’ agreement on the matters contained in the Closing Date Documents. All prior and contemporaneous negotiations, writings and agreements between the parties and their counsel on the matters contained in the Closing Date Documents are expressly merged into and superseded by the Closing Date Documents. The provisions of the Closing Date Documents may not be explained, supplemented, interpreted or qualified through evidence of trade usage, a prior course of dealings or correspondence between the parties or their counsel, and no such trade usage, prior course of dealings or correspondence shall give rise to any implied covenants or other implied terms. In entering into the Closing Date Documents, neither party has relied upon any statement, representation, warranty, or agreement of the other party or any of its agents or attorneys except for those expressly contained in the Closing Date Documents.

19.          Headings . The headings of the sections and paragraphs of this Note are inserted for convenience only and do not constitute a part of this Note.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, Nephros, Inc. has caused this Note to be signed in its corporate name by one of its officers thereunto duly authorized and to be dated as of the day and year first above written.

Signature Page

Nephros, Inc. - Promissory Note

EXHIBIT 10.2

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of November 12, 2013, by and between NEPHROS, INC., a Delaware corporation (the “Company”), and LAMBDA INVESTORS LLC (“Lambda”).

WHEREAS, Lambda is the beneficial owner of certain securities issued by the Company; and

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

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

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

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

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

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

“Effectiveness Date” shall mean, with respect to the Resale Registration Statement, the ninetieth (90th) day following the Filing Date in the event the Resale Registration Statement is not subject to review by the SEC, or the one hundred eightieth (180th) day following the Filing Date in the event the Resale Registration Statement is reviewed by the SEC; provided that , if the Effectiveness Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the SEC is authorized or required by law or other government actions to close, the Effectiveness Date shall be the following Business Day.

“Effectiveness Period” shall have the meaning set forth in Section 3(a).

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

“Filing Date” shall mean the thirtieth (30th) day after the closing of the Rights Offering; provided that , if the Filing Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the SEC is authorized or required by law or other government actions to close, the Filing Date shall be the following Business Day.

“Form S-1” shall mean such long registration form under the Securities Act as in effect on the date hereof or any successor or similar registration form under the Securities Act subsequently adopted by the SEC which does not permit inclusion or incorporation of certain information by reference to other document filed by the Company with the SEC.

“Form S-3” shall mean such short registration form under the Securities Act as in effect on the date hereof or any successor or similar registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

“Holder” shall mean Lambda and any transferee or assignee of record of Registrable Securities in accordance with Section 10(c) or any other person owning of record Registrable Securities that have not been sold to the public.

“Losses” shall have the meaning set forth in Section 5(a).

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

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

“Registrable Securities” shall mean shares of Common Stock issued or issuable to Lambda in the Rights Offering, and any other securities issued as a result of, or in connection with, any stock dividend, stock split or reverse stock split, combination, recapitalization, reclassification, merger or consolidation, exchange or distribution in respect of the Common Stock referred to above.

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

“Resale Registration Statement” shall mean the Registration Statement referred to in Section 3(a).

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

“Rights Offering” shall mean the Company’s registered offering of up to an aggregate of 9,166,667 shares of Common Stock at a price of $0.30 per share.

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

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

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

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

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

Section 2. Securities Subject to this Agreement . The securities entitled to the benefits of this Agreement are the Registrable Securities but, with respect to any particular Registrable Security, only so long as such security continues to be a Restricted Security. A Registrable Security that has ceased to be a Restricted Security cannot thereafter become a Restricted Security. As used herein, a Restricted Security shall cease to be a Restricted Security, and will no longer be a Registrable Security hereunder, when: (i) it has been registered under the Securities Act, the registration statement in connection therewith has been declared effective and such Restricted Security has been disposed of pursuant to such effective registration statement; (ii) it is eligible to be sold or distributed pursuant to Rule 144 without restriction; or (iii) it shall have ceased to be outstanding.

Section 3. Required Resale Registration

(a)           On or prior to the Filing Date, the Company shall prepare and file with the SEC a “resale” Registration Statement (once declared effective by the SEC, the “Resale Registration Statement”) providing for the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Resale Registration Statement shall be on Form S-1 or another appropriate form in accordance herewith and with the Securities Act and the rules promulgated thereunder, except that if the Company is then eligible to register for resale the Registrable Securities on Form S-3, such registration shall be on Form S-3. Such Resale Registration Statement shall also cover, to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. The Company shall use its commercially reasonable best efforts to cause the Resale Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the Effectiveness Date, and to keep such Resale Registration Statement continuously effective under the Securities Act until all of the Registrable Securities have ceased to be Restricted Securities (the “Effectiveness Period”). The Company shall immediately notify the Holders via facsimile or electronic mail of the effectiveness of the Resale Registration Statement on the same trading day that the Company telephonically confirms effectiveness with the SEC, which date shall be the date effectiveness of the Resale Registration Statement is granted by the SEC.

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

(c)           In connection with the Company’s registration obligations hereunder, the Company shall, as expeditiously as reasonably possible:

(A)           Prepare and file with the SEC such amendments, including post-effective amendments, to the Resale Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Resale Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424 of the Securities Act; (iii) respond as promptly as reasonably possible to any comments received from the SEC with respect to such Resale Registration Statement or any amendment thereto or any document filed with the SEC that would suspend the effectiveness of such Resale Registration Statement, and as promptly as reasonably possible provide the Holders with true and complete copies of all correspondence from and to the SEC relating to such Resale Registration Statement (other than those portions of any correspondence containing material nonpublic information); and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by such Resale Registration Statement as so amended or in such Prospectus as so supplemented; provided, that before filing such Resale Registration Statement or Prospectus, or any amendments or supplements thereto, the Company shall furnish to one counsel selected by the Holders holding a majority of the Registrable Securities covered by such Resale Registration Statement or Prospectus copies of all documents proposed to be filed, which documents will be subject to review of such counsel.

(B)           Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (v) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible and confirm such notice in writing no later than one trading day following the day (i) (X) when the SEC notifies the Company whether there will be a “review” of the Resale Registration Statement and whenever the SEC comments in writing on such Resale Registration Statement; (Y) when a Prospectus or any Prospectus supplement or post-effective amendment to the Resale Registration Statement is filed and (Z) with respect to the Resale Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to the Resale Registration Statement or Prospectus or for additional information; (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of the Resale Registration Statement covering any or all of the Registrable Securities or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in the Resale Registration Statement ineligible for inclusion therein or any statement made in the Resale Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Resale Registration Statement, Prospectus or other documents so that, in the case of the Resale Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that any and all of such information provided pursuant to clause (v) above shall remain confidential to each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided , further , notwithstanding each Holder’s agreement to keep such information confidential, the Holders make no acknowledgement that any such information is material, non-public information. Without limitation of any remedies to which the Holders may be entitled under this Agreement, if any of the events described in this subsection (B) occur, the Company shall use its commercially reasonable best efforts to respond to and correct the event as promptly as possible.

(C)           Use its commercially reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of the Resale Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as promptly as possible.

(D)           Enter into such customary agreements (including an underwriting agreement in customary form) and take such other actions as the Holders of a majority of such Registrable Securities or the underwriters, if any reasonably request in order to expedite or facilitate the dispositions of such Registrable Securities;

(E)           In the case of an underwritten offering, obtain a “cold comfort” letter or letters from the Company’s independent public accountants in customary form and covering matters of the type customarily covered by “cold comfort” letters as the Holders of a majority of such Registrable Securities shall reasonably request.

(F)           In the case of an underwritten offering, obtain an opinion of counsel for the Company in customary form and covering matters of the type customarily covered in opinions of issuer’s counsel as the Holders of a majority of such Registrable Securities may reasonably request.

(G)           Make available for inspection by any selling Holder of such Registrable Securities covered by such Resale Registration Statement, by any underwriter participating in any disposition to be effected pursuant to such Resale Registration Statement and by any attorney, accountant or other agent retained by any such selling Holder or any such underwriter (collectively, the “Inspectors”), all pertinent financial and other records, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause all of the Company’s officers, directors and employees to supply all information reasonably requested by any such selling Holder or Inspectors in connection with such registration statement. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the release of such records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. Each selling Holder of Registrable Securities agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such is made generally available to the public. Each selling Holder of Registrable Securities further agrees that it will, upon learning that disclosure of such records is sought in a court of competent jurisdiction, give notice to the Company to the extent reasonably practicable and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the records deemed confidential.

(H)           Furnish to the Holders and their counsel, without charge, at least one conformed copy of any Resale Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Holder, and all exhibits to the extent requested by such Holder (including those previously furnished or incorporated by reference), as promptly as possible after the filing of such documents with the SEC.

(I)           Promptly deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Holders may reasonably request in connection with resales by the Holder of Registrable Securities. Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(c)(B)(iii) through (v).

(J)           Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable best efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by the Resale Registration Statement; provided that the Company shall not be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this clause (K), it would not be obligated to be so qualified or subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

(K)           Use its commercially reasonable best efforts to cause the Registrable Securities covered by the Resale Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the selling Holders to consummate the disposition of such Registrable Securities.

(L)           Use its commercially reasonable best efforts to cause its transfer agent to prepare and deliver certificates representing Registrable Securities to a transferee pursuant to the Resale Registration Statement within three (3) trading days of delivery to the transfer agent of certificates bearing restrictive legends, which certificates shall be free of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request.

(M)           Upon the occurrence of any event contemplated by Section 3(c)(B), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to the Resale Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Resale Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (v) of Section 3(c)(B) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its commercially reasonable best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(c)(M) to suspend the availability of the Resale Registration Statement and Prospectus for a period not to exceed 90 days (which need not be consecutive days) in any 365-day period.

(N)           Comply in all material respects with all applicable rules and regulations of the SEC and the OTC Bulletin Board (or any successor entity or any national securities exchange on which the Common Stock is then listed).

(O)           The Company shall (i) as soon as reasonably practicable include in a prospectus supplement or post-effective amendment such information as is reasonably required to be included therein relating to any proposed sale and distribution of Registrable Securities by such Holder, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering, and (ii) as soon as reasonably practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be included in such prospectus supplement or post-effective amendment.

(P)           Unless waived by Holders owning a majority of the outstanding Registrable Securities, include in such Resale Registration Statement, amendment thereto, or prospectus or prospectus supplement all material non-public information made available by the Company to any Holder prior to the filing thereof, except for material non-public information made available to a Holder to whom knowledge of a member of the Board of Directors of the Company is attributable.

(d)           Holder hereby covenants with the Company (i) not to make any sale of the Registrable Securities pursuant to the Resale Registration Statement without effectively causing the prospectus delivery requirements under the Securities Act to be satisfied, and (ii) if such Registrable Securities are to be sold by any method or in any transaction other than as specified in the plan of distribution disclosed in such Resale Registration Statement, to notify the Company at least five (5) Business Days prior to the date on which the Holder first offers to sell any such Registrable Securities.

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

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

Section 4. Registration Expenses . All expenses incident to the Company’s performance of or compliance with this Agreement will be borne by the Company, regardless of whether the Resale Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees; (ii) all reasonable fees and expenses of compliance with federal securities and state blue sky or securities laws; (iii) all reasonable expenses of printing (including printing Prospectuses), messenger and delivery services and telephone; (iv) all reasonable fees and disbursements of counsel for the Company; (v) all reasonable fees and disbursements of one counsel selected by the Holders holding a majority of the Registrable Securities, (vi) all applications and filing fees in connection with qualification of the Registrable Securities on the OTC Bulletin Board or listing on a national securities exchange; (vii) Securities Act liability insurance, if the Company so desires such insurance, (viii) all reasonable fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance) and (ix) all reasonable fees and expenses of an underwriter or underwriters in connection with an Underwritten Offering of Registrable Securities. Notwithstanding anything in this Section 4 to the contrary, the Company shall not be required to pay any underwriting discounts, commissions or transfer taxes, if any, relating to the sale or disposition of any Holder’s Restricted Securities.

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

Section 5. Indemnification .

(a)           Indemnification by the Company . To the fullest extent permitted by law, the Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder of the Registrable Securities (including, its officers, directors, members, partners, agents, brokers, investment advisors and employees of each of them) and each person controlling such Holder within the meaning of Section 15 of the Securities Act (including the officers, directors, members, partners, agent and employees of each such controlling person), with respect to which any registration has been effected pursuant to this Agreement, against all claims, losses, damages, liabilities, judgments, fines, penalties, charges, costs (including, without limitation, reasonable attorneys’ fees and disbursements) and expenses (collectively, “Losses”), as incurred, including any Losses incurred in settlement of any litigation, commenced or threatened (subject to Subsection 5(c) below), arising out of or based on any untrue or alleged untrue statement of a material fact contained in the Resale Registration Statement or Prospectus, or any amendment or supplement thereto, incident to any such registration, or based on any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in light of the circumstances in which they were made; provided , that the Company shall not be liable in any such case to the extent that any untrue or alleged untrue statement or omission or alleged omission is made in reliance upon and in conformity with information furnished to the Company by or on behalf of any Holder and stated to be specifically for use in preparation of such Resale Registration Statement or Prospectus, or any amendment or supplement thereto; provided , further , that the Company shall not be liable in any such case where the Losses arise out of, or are related to, the failure of any Holder to comply with the covenants and agreements contained in this Agreement. The Company will also indemnify underwriters participating in the distribution, their officers, directors, employees, partners and agents, and each Person who controls such underwriters (within the meaning of the Securities Act), to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities, if so requested. The Company shall notify the Holders promptly of the institution, threat or assertion of any legal proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.

(b)           Indemnification by Holders of Registrable Securities . In connection with the Resale Registration Statement or Prospectus, or any amendments or supplements thereto, each Holder will furnish to the Company in writing such information and affidavits regarding the Holder or such Holder’s ownership of the Company’s securities as the Company reasonably requests for use in connection with such Resale Registration Statement or Prospectus or any amendments or supplements thereto. Each Holder will severally and not jointly indemnify the Company, each of its directors and officers, each underwriter of an underwritten offering of the Registrable Securities in which such Holder participates, each other Holder whose Registrable Securities are included in such Resale Registration Statement and each person who controls the Company within the meaning of Section 15 of the Securities Act (collectively, “Holder Indemnitees”), against all Losses, as incurred, including any Losses incurred in settlement of any litigation, commenced or threatened (subject to Subsection 5(c) below), arising out of, or based on, any untrue or alleged untrue statement of a material fact contained in such Resale Registration Statement or Prospectus, or any amendment or supplement thereof, incident to any such registration, or based on any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in light of the circumstances in which they were made, in each case to the extent, but only to the extent, that such untrue or alleged untrue statement or omission or alleged omission is made in reliance upon and in conformity with written information and/or affidavits furnished to the Company by or on behalf of such Holder; provided , that the indemnity shall not apply to the extent that such Losses result from the fact that a current copy of the Prospectus was not made available to the Holders and such current copy of the Prospectus would have cured the defect giving rise to such Losses. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities covered by such Resale Registration Statement giving rise to such indemnification obligation. The Holder Indemnitees shall be entitled to receive indemnities from underwriters participating in the distribution, to the same extent as provided above, with respect to information furnished in writing by such underwriters specifically for inclusion in any Registration Statement, Prospectus or any amendment or supplement thereto.

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

(d)           Contribution . If for any reason the indemnification provided for in Subsection 5(a) or Subsection 5(b) is unavailable to an indemnified party or insufficient to hold it harmless as contemplated by Subsection 5(a) and Subsection 5(b), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Losses in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party and the indemnified party, but also the relative fault of the indemnifying party and the indemnified party, as well as any other relevant equitable considerations. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentations. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

Section 6. Participation in Underwritten Registrations .

(a)           One or more Holders may elect to retain an underwriter to conduct an Underwritten Offering of all or a portion of the Registrable Securities held by such Holders, which underwriter shall be selected by the Holders holding a majority of the Registrable Securities requested for inclusion in such Underwritten Offering. In the event any Holders elect to conduct an Underwritten Offering, such Holders shall promptly give notice to each other Holder and each such other Holder shall be entitled to participate in such Underwritten Offering subject to Subsection 6(b) below. Notwithstanding any other provision of this Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of Registrable Securities to be underwritten, the number of Registrable Securities that may be included in such Underwritten Offering shall be allocated among the participating Holders on a pro rata basis based on the total number of Registrable Securities proposed to be sold in such Underwritten Offering by such Holders.

(b)           No Person may participate in any Underwritten Offering hereunder unless such Person (i) agrees to sell such Person’s Registrable Securities on the basis provided in any underwriting arrangements approved by the Holders of a majority of the Registrable Securities included in such Underwritten Offering and (ii) completes and executes an underwriting agreement in customary form and other documents required under the terms of such underwriting agreement. Nothing in this Section 6 shall be construed to create any additional rights regarding the registration of Registrable Securities in any Person otherwise than as set forth herein.

(c)           Nothing in this Section 6 shall obligate the Company to pay any underwriting discounts or commissions in connection with any underwritten offering of Registrable Securities.

Section 7. Rule 144 . The Company agrees with each Holder, for so long as any Restricted Securities remain outstanding and during any period in which the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of such Holder in connection with any sale thereof and any prospective purchaser of such Restricted Securities designated by the Holder, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15(d) of the Exchange Act, to use reasonable efforts to make all filings required thereby in a timely manner in order to permit resales of such Restricted Securities pursuant to Rule 144.

Section 8. Legend . Each Holder consents to the placing of any legend required by the Securities Act as well as the following legend on all certificates representing shares of Registrable Securities and on any certificate issued at any time in exchange or substitution for any certificate bearing such legend, for so long as the securities represented thereby are Registrable Securities:

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

Section 9. Delay Periods; Suspension of Sales . Each Holder shall suspend, upon request of the Company pursuant to Section 3(c)(M), any disposition of Registrable Securities pursuant to the Resale Registration Statement and Prospectus, or any amendments or supplements thereto, as contemplated herein during (i) any period not to exceed two 30-day periods within any one 12-month period the Company requires in connection with a primary underwritten offering of equity securities and (ii) any period, not to exceed one 45-day period per circumstance or development, when the Company determines in good faith that offers and sales pursuant thereto should not be made by reason of the presence of material undisclosed circumstances or developments with respect to which the disclosure that would be required in such a prospectus is premature, would have an adverse effect on the Company or is otherwise inadvisable; provided , however , the aggregate number of days that such suspensions and any suspensions under Section 3(c)(M) may apply during any 365-day period is 90 days. In the event of a delay period or suspension, the Company will use its commercially reasonable best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. Nothing in this Section 9 shall operate to extend the Effectiveness Date.

Section 10. Miscellaneous .

(a)           Amendments and Waivers . The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, without the written consent of the Company and the Holders of a majority of the outstanding Registrable Securities; provided , however , that no such amendment, modification, supplement, waiver, consent or departure shall distinguish between Holders or groups of Holders unless any Holder adversely affected thereby shall have consented thereto in writing. Notwithstanding the foregoing, no amendment, modification, supplement, waiver or consent will be valid and binding unless it is in writing, signed by the requisite Persons, and expressly refers to this Agreement and the provisions intended to be amended, modified, supplemented, waived or consented to.

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

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

if to the Company, Nephros, Inc., 41 Grand Avenue, River Edge, New Jersey 0766, Attention: John Houghton

With a copy to: Day Pitney LLP, One Jefferson Road, Parsippany, New Jersey 07054-2891, Attention: Michael T. Rave

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

The address or person or entity to whose attention any notice or communication shall be given may be changed by notice to the other parties in accordance with the provisions of this Section 10(b).

(c)           Successors and Assigns; Third Party Beneficiaries . This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and shall inure to the benefit of each Holder, and it is not the intention of the parties to confer upon any other person or entity any rights or remedies. The Company may not assign its rights or obligations hereunder without the prior written consent of the Holders of a majority of the outstanding Registrable Securities. Each Holder may assign its respective rights hereunder to any Person to whom such Holder transfers Registrable Securities, provided such transfer is in accordance with all applicable securities laws. If any transferee of a Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and such person shall be entitled to receive the benefits hereof.

(d)           No Inconsistent Agreements . The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with, adversely effects or violates the rights granted to the Holders in this Agreement.

(e)           Delays or Omissions . It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative.

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

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

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

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

(j)           Jurisdiction; Forum . Each party hereto consents and submits to the exclusive general jurisdiction of the courts of the State of Delaware, the courts of the United States of America for the District of Delaware, and appellate courts from any thereof in connection with any dispute arising out of or relating to this Agreement, and agrees that all suits, actions and proceedings brought by such party hereunder shall be brought only in such jurisdictions. Each party hereto waives any objection to the laying of venue in such courts and any claim that any such action has been brought in an inconvenient forum. To the extent permitted by law, any judgment in respect of a dispute arising out of or relating to this Agreement may be enforced in any other jurisdiction within or outside the United States by suit on the judgment, a certified copy of such judgment being conclusive evidence of the fact and amount of such judgment. Each party hereto agrees that personal service of process may be effected by any of the means specified in Section 10(b), addressed to such party. The foregoing shall not limit the rights of any party to serve process in any other manner permitted by law.

(k)           Waiver of Jury Trial . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT HE OR IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10(K).

(l)           Entire Agreement . This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto with respect to registration rights granted with respect to Registrable Securities. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Registrable Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter; provided, however, that this Agreement shall not amend, restate or supersede that certain Registration Rights Agreement, dated September 30, 2010 by and between the Company and the Lender or that certain Registration Rights Agreement by and between the Company and the Lender dated February 4, 2013 and such Registration Rights Agreements shall remain in full force and effect.

(m)           Independent Nature of Holders’ Obligations and Rights . The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose.

(n)           Attorneys’ Fees . In the event of any litigation or other proceeding concerning this Agreement or the transactions contemplated hereby, including any such litigation or proceeding with respect to the enforcement of this Agreement against any defaulting party, the prevailing party in such litigation or proceeding shall be entitled to reimbursement from the party opposing such prevailing party for all attorneys’ fees and costs incurred by such prevailing party in such litigation or proceeding, which shall include, without limitation, all fees, costs and expenses of appeals.

[SIGNATURE PAGE FOLLOWS IMMEDIATELY]

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

INITIAL HOLDER: Lambda Investors LLC

Address for Notices:

Lambda Investors LLC

c/o Wexford Capital LP

411 West Putnam Avenue

Greenwich, CT 06830

Attention: Arthur Amron

SCHEDULE 1

EXHIBIT A

Form of Counterpart Signature Page

IN WITNESS WHEREOF, the undersigned has caused this counterpart to the Registration Rights Agreement among Nephros, Inc. and the Holders (as defined therein), dated as of November 12, 2013, as amended from time to time, to be duly executed and delivered as of _______ __, ____.

Accepted and agreed to as of the __ day of _________, ____:

EXHIBIT 10.3

SECURITY AGREEMENT

by and between

NEPHROS, INC.

And

LAMBDA INVESTORS LLC

dated as of November 12, 2013

TABLE OF CONTENTS

EXHIBIT 10.3

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of November 12, 2013 (as amended, amended and restated, supplemented, or otherwise modified from time to time in accordance with the provisions hereof, this “ Agreement ”) , is by and between Nephros, Inc., a Delaware corporation (the “ Company ”), and LAMBDA INVESTORS LLC (together with any assignees of the Promissory Note (as defined below) from time to time and their respective successors, the “ Lender ”) .

RECITALS

A.           The Company has requested a $1,500,000 loan from the Lender (the “ Loan ”).

B.           The Lender has agreed to make the Loan subject, in part, to the Company entering into this Agreement.

AGREEMENT :

NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Lender hereby agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

Section 1.1.           Definitions.

(a)          Unless otherwise defined herein or in the Promissory Note, capitalized terms used herein that are defined in the UCC shall have the meanings assigned to them in the UCC.

(b)          Terms used but not otherwise defined herein that are defined in the Promissory Note shall have the meanings given to them in the Promissory Note.

(c)          The following terms shall have the following meanings:

“ Agreement ” shall have the meaning assigned to such term in the Preamble hereof.

“ Capital Security ” shall mean (a) any share of capital stock of or other unit of ownership interest in any Person and (b) any security convertible into, or any option, warrant or other right to acquire, any share of capital stock of or other unit of ownership interest in such Person.

“ Claims ” shall mean any and all property and other taxes, assessments and special assessments, levies, fees and all governmental charges imposed upon or assessed against, and landlords’, carriers’, mechanics’, workmen’s, repairmen’s, laborers’, materialmen’s, suppliers’ and warehousemen’s Liens and other claims arising by operation of law against, all or any portion of the Pledged Collateral.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended, or any successor statue.

“ Company ” shall have the meaning assigned to such term in the Preamble hereof.

“ Contested Liens ” shall mean, collectively, any Liens incurred in respect of any Claims to the extent that the amounts owing in respect thereof are not yet delinquent or are being contested and otherwise comply with the provisions of Section 4.10 hereof; provided , however , that such Liens shall in all respects be subject and subordinate in priority to the Lien and security interest created by this Agreement, except if to the extent that the law or regulation creating, permitting or authorizing such Lien provides that such Lien must be superior to the Lien and security interest created and evidenced hereby.

“ Contracts ” shall mean, collectively, with respect to the Company, all sale, service, performance, equipment or property lease contracts, agreements and grants and all other contracts, agreements or grants (in each case, whether written or oral, or third party or intercompany), between the Company and third parties, and all assignments, amendments, restatements, supplements, extensions, renewals, replacements or modifications thereof.

“ Control ” shall mean “control,” as such term is defined in the UCC, including, without limitation, Sections 8-106, 9-104, 9-105, and 9-106 thereof.

“ Copyrights ” shall mean, collectively, with respect to the Company, all copyrights (whether statutory or common law, whether established or registered in the United States or any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished) and all copyright registrations and applications made by the Company, in each case, whether now owned or hereafter created or acquired by or assigned to the Company, together with any and all (a) rights and privileges arising under applicable law with respect to the Company’s use of such copyrights, (b) reissues, renewals, continuations and extensions thereof, (c) income, fees, royalties, damages, claims and payments now or hereafter due and/or payable with respect thereto, including damages and payments for past, present or future infringements thereof, (d) rights corresponding thereto throughout the world and (e) rights to sue for past, present or future infringements thereof.

“ Domestic Subsidiary ” shall mean, any subsidiary of the Company other than a Foreign Subsidiary.

“ Event of Default ” has the meaning given such term in the Promissory Note.

“ Excluded Property ” shall mean Special Property other than the following:

(a)           the right to receive any payment of money (including Accounts, General Intangibles and Payment Intangibles) or any other rights referred to in Sections 9-406(f), 9-407(a) or 9-408(a) of the UCC to the extent that such sections of the UCC are effective to limit the prohibitions which make such property “Special Property”; and

(b)           any Proceeds, substitutions or replacements of any Special Property (unless such Proceeds, substitutions or replacements would constitute Special Property).

“ Fee Letter ” shall mean, that certain letter from the Lender to the Company, dated November 12, 2013, which pertains to the sourcing transaction fee payable by the Company to the Lender in connection with the Loan.

“ Foreign Subsidiary ” shall mean, any subsidiary of the Company that is organized under the laws of a jurisdiction other than the United States, a State thereof or the District of Columbia.

“ General Intangibles ” shall mean, collectively, with respect to the Company, all “general intangibles,” as such term is defined in the UCC, of the Company and, in any event, shall include (a) all of the Company’s rights, title and interest in, to and under all insurance policies and Contracts, (b) all know-how and warranties relating to any of the Pledged Collateral, (c) any and all other rights, claims, choses-in-action and causes of action of the Company against any other person and the benefits of any and all collateral or other security given by any other person in connection therewith, (d) all guarantees, endorsements and indemnifications on, or of, any of the Pledged Collateral, (e) all lists, books, records, correspondence, ledgers, printouts, files (whether in printed form or stored electronically), tapes and other papers or materials containing information relating to any of the Pledged Collateral, including all customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, appraisals, recorded knowledge, surveys, studies, engineering reports, test reports, manuals, standards, processing standards, performance standards, catalogs, research data, computer and automatic machinery software and programs and the like, field repair data, accounting information pertaining to the Company’s operations or any of the Pledged Collateral and all media in which or on which any of the information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data, (f) all licenses, consents, permits, variances, certifications, authorizations and approvals, however characterized, of any Governmental Authority (or any person acting on behalf of a Governmental Authority) now or hereafter acquired or held by the Company pertaining to operations now or hereafter conducted by the Company or any of the Pledged Collateral and (g) all rights to reserves, deferred payments, deposits, refunds, indemnification of claims to the extent the foregoing relate to any Pledged Collateral and claims for tax or other refunds against any Governmental Authority relating to any Pledged Collateral.

“ Goodwill ” shall mean, collectively, with respect to the Company, the goodwill connected with the Company’s business including (a) all goodwill connected with the use of and symbolized by any Trademark or Trademark License in which the Company has any interest, (b) all know-how, trade secrets, customer and supplier lists, proprietary information, inventions, methods, procedures, formulae, descriptions, compositions, technical data, drawings, specifications, name plates, catalogs, confidential information and the right to limit the use or disclosure thereof by any person, pricing and cost information, business and marketing plans and proposals, consulting agreements, engineering contracts and such other assets which relate to such goodwill and (c) all product lines of the Company’s business.

“ Governmental Authority ” shall mean, any federal, state, local or foreign court, central bank or governmental agency, authority, instrumentality or regulatory body or any subdivision thereof.

“ HSBC Deposit Accounts ” shall mean, the Deposit Accounts listed as “HSBC Deposit Accounts” in Schedule 5 hereto.

“ Instruments ” shall mean, collectively, with respect to the Company, all “instruments,” as such term is defined in Article 9, rather than Article 3, of the UCC, and shall include all promissory securities, drafts, bills of exchange or acceptances.

“ Intellectual Property Collateral ” shall mean, collectively, the Patents, Trademarks, Copyrights, Licenses, and Goodwill.

“ Intellectual Property Security Agreement ” shall mean, that certain Intellectual Property Security Agreement, dated as of the date hereof, between the Company and the Lender, as the same may be amended from time to time.

“ Investment Property ” shall mean, a security, whether certificated or un-certificated.

“ Lender ” shall have the meaning assigned to such term in the Preamble hereof.

“ Licenses ” shall mean, collectively, with respect to the Company, all license and distribution agreements with, and covenants not to sue, any other party with respect to any Patent, Trademark or Copyright or any other patent, trademark or copyright, whether the Company is a licensor or licensee, distributor or distributee under any such license or distribution agreement together with any and all (a) renewals, extensions, supplements and continuations thereof, (b) income, fees, royalties, damages, claims and payments now and hereafter due and/or payable thereunder and with respect thereto including damages and payments for past, present or future infringements or violations thereof, (c) rights to sue for past, present and future infringements or violations thereof and (d) other rights to use, exploit or practice any or all of the Patents, Trademarks or Copyrights or any other patent, trademark or copyright.

“ Loan ” shall have the meaning assigned to such term in the Recitals hereof.

“ Material Adverse Effect ” shall mean, a material adverse effect on the business, results of operations, properties, prospects, assets, financial condition or liabilities (actual or contingent) of the Company and its subsidiaries, taken as a whole.

“ Obligations ” shall mean, all amounts due, and the performance of all other obligations of the Company to the Lender, under the Promissory Note, the Fee Letter, the other Promissory Note Documents, and any other documents executed in connection therewith.

“ Patents ” shall mean, collectively, with respect to the Company, all patents issued or assigned to and all patent applications and registrations made by Company (whether established or registered or recorded in the United States or any other country or any political subdivision thereof), together with any and all (a) rights and privileges arising under applicable law with respect to the Company’s use of any patents, (b) inventions and improvements described and claimed therein, (c) reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, (d) income, fees, royalties, damages, claims and payments now or hereafter due and/or payable thereunder and with respect thereto including damages and payments for past, present or future infringements thereof; (e) rights corresponding thereto throughout the world and (f) rights to sue for past, present or future infringements thereof.

“ Perfected Deposit Account ” shall mean, a Deposit Account that constitutes Pledged Collateral and that is subject to the Control of the Lender pursuant to a deposit account control agreement acceptable to the Lender.

“ Permitted Liens ” shall mean:

(a)           Liens for taxes, assessments or other governmental charges not yet due or if the payment of such taxes, assessments or other governmental charges is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted;

(b)          Statutory Liens of landlords, and Liens of banks and securities intermediaries (and rights of set-off), laboratories, post-production houses, record warehouses, carriers, warehousemen, processors, replicators, mechanics, repairmen, workmen and materialmen and other similar Persons, and other Liens imposed by law, in each case incurred in the ordinary course of business (a) for amounts not yet overdue or (b) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of fifteen (15) days) are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP has been made for any such contested amounts;

(c)          Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; and

(d)          Liens that are contractual rights of set-off relating to the establishment of depository relations with banks not given in connection with the issuance if indebtedness.

“ Pledge Amendment ” shall have the meaning assigned to such term in Section 5.2 hereof.

“ Pledged Collateral ” shall have the meaning assigned to such term in Section 2.1 hereof.

“ Pledged Entity ” shall mean, an issuer of Pledged Shares or Pledged Indebtedness.

“ Pledged Indebtedness ” shall mean, the Indebtedness evidenced by promissory notes and instruments listed on Part B of Schedule 1 hereto.

“ Pledged Shares ” shall mean, (a) with respect to a Domestic Subsidiary, all of the issued and outstanding Capital Securities of such Domestic Subsidiary at any time owned by the Company, (b) with respect to a Foreign Subsidiary, all of the issued and outstanding Capital Securities of such Foreign Subsidiary, at any time owned by the Company; provided that , except as provided in Section 5.2(e) hereof, the Company shall not be required to pledge hereunder more than 65% of the total combined voting power of all classes of Capital Securities of any Foreign Subsidiary entitled to vote (or such lesser percentage so as to avoid the undistributed earnings of any particular Foreign Subsidiary as determined for United States Federal income tax purposes treated as a deemed dividend to such Foreign Subsidiary’s United States parent for United States Federal income tax purposes), and (c) in any event until released in accordance with the terms of this Agreement or the Promissory Note, all of the Capital Securities set forth on Schedule 1 hereto. The Company represents and warrants that on the date hereof, such Capital Securities constitute that percentage of the issued and outstanding Capital Securities of the issuing subsidiary as is set forth in Schedule 1 hereto. In the circumstances and to the extent provided in Section 5.2(e) hereof, the limitation set forth in clause (b) above shall no longer be applicable and the Company shall duly pledge and deliver to the Lender such of the Capital Securities not theretofore required to be pledged hereunder to the extent provided in Section 5.2 hereof.

“ Promissory Note ” shall mean, that certain Senior Secured Note, dated as of the date hereof, made by the Company payable to the order of the Lender in the original principal sum of $1,500,000, and any Senior Secured Note or Notes subsequently issued upon exchange or transfer thereof, and shall include all amendments, supplements and other modifications thereto.

“ Promissory Note Documents ” shall mean, the Promissory Note, the Fee Letter, this Agreement, and the other Security Documents.

“ Real Property ” shall mean, collectively, all right, title and interest (including any leasehold estate) in and to any and all parcels of or interests in real property owned, leased or operated by any Person, whether by lease, license or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, all general intangibles and contract rights and other property and rights incidental to the ownership, lease or operation thereof.

“ Requirement(s) Of Law ” shall mean, collectively, any and all requirements of any Governmental Authority including any and all laws, ordinances, rules, regulations or similar statutes or case law.

“ Secured Obligations ” shall mean, all Obligations, and all other liabilities and indebtedness of every kind, nature and description (whether or not constituting future advances or otherwise) from time to time owing by, or on behalf of, the Company or any of its subsidiaries under, or in connection with, the Promissory Note and the other Promissory Note Documents, including principal, interest, charges, fees, premiums, indemnities and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, evidenced by or arising under the Promissory Note or any such Promissory Note Document whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of such documents, or after the commencement of any case with respect to the Company or any of its subsidiaries under any bankruptcy law (at the rate provided for in the Promissory Note) (and including, without limitation, any principal, premium, interest, fees, costs, expenses and other amounts, which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in any such case or similar proceeding), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or un-liquidated, secured or unsecured, and whether arising directly or howsoever acquired.

“ Securities Collateral ” shall mean, collectively, the Pledged Shares and Pledged Indebtedness.

“ Significant Copyrights ” shall mean, at anytime, those Copyrights which the Company believes in its reasonable judgment to be material to its business at such time.

“ Security Documents ” shall mean, this Agreement, the Intellectual Property Security Agreement and any other agreement or filing made in connection therewith.

“ Significant Patents ” shall mean, at any time, those Patents which the Company believes in its reasonable judgment to be material to its business at such time.

“ Significant Trademarks ” shall mean, at any time, those Trademarks which the Company believes in its reasonable judgment to be material to its business at such time.

“ Special Property ” shall mean:

(a)           any permit, lease, license or other agreement held by the Company that validly prohibits the creation by the Company of a security interest therein; and

(b)           any permit, lease, license or other agreement held by the Company to the extent that any Requirement of Law applicable thereto prohibits the creation of a security interest therein.

provided , however , that in each case described in clauses (a) and (b) of this definition, such property shall constitute “Special Property” only to the extent and for so long as such permit, lease, license, contract or other agreement or Requirement of Law applicable thereto validly prohibits the creation of a Lien on such property in favor of the Lender and, upon the termination of such prohibition (howsoever occurring), such property shall cease to constitute “Special Property.”

“ Termination Date ” shall mean the date on which all of the Secured Obligations are indefeasibly paid in full in cash.

“ Trademarks ” shall mean, collectively, with respect to the Company, all trademarks (including service marks), slogans, logos, certification marks, trade dress, uniform resource locations (URLs), domain names, corporate names and trade names, whether registered or unregistered, owned by or assigned to the Company and all registrations and applications for the foregoing (whether statutory or common law and whether established or registered in the United States or any other country or any political subdivision thereof), together with any and all (a) rights and privileges arising under applicable law with respect to the Company’s use of any trademarks, (b) reissues, continuations, extensions and renewals thereof, (c) income, fees, royalties, damages and payments now and hereafter due and/or payable thereunder and with respect thereto, including damages, claims and payments for past, present or future infringements thereof, (d) rights corresponding thereto throughout the world and (e) rights to sue for past, present and future infringements thereof.

“ UCC ” shall mean, the Uniform Commercial Code as in effect on the date hereof in the State of New York; provided , however , that if by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Lender’s security interest in any item or portion of the Pledged Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect on the date hereof in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions relating to such provisions.

Section 1.2.           Interpretation . Any rules of interpretation specified in the Promissory Note shall be applicable to this Agreement.

Section 1.3.           Resolution of Drafting Ambiguities . The Company acknowledges and agrees that it was represented by counsel in connection with the execution and delivery hereof, that it and its counsel reviewed and participated in the preparation and negotiation hereof and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party i.e ., (the Lender) shall not be employed in the interpretation hereof.

ARTICLE II

GRANT OF SECURITY AND SECURED OBLIGATIONS

Section 2.1.           Grant of Security Interest . As collateral security for the payment and performance in full of all the Secured Obligations, the Company hereby pledges and grants to the Lender for the benefit of the Lender and all other holders of any of the Secured Obligations from time to time, a lien on and security interest in and to all of the right, title, and interest of the Company in all property and assets of the Company, including the following property, wherever located, whether now existing or hereafter arising or acquired from time to time (collectively, the “ Pledged Collateral ”):

(a)          all Accounts;

(b)          all Equipment, Goods, Inventory and Fixtures;

(c)          all Documents, Instruments and Chattel Paper;

(d)          all Letters of Credit and Letter-of-Credit Rights;

(e)          all Securities Collateral;

(f)          all Deposit Accounts and Securities Accounts;

(g)          all Investment Property (excluding any Securities Collateral and any Capital Securities issued by any issuer thereof and not constituting Pledged Shares because of clause (b) of the definition of “Pledged Shares”);

(h)          all Intellectual Property Collateral;

(i)          the Commercial Tort Claims described on Schedule 2 hereto;

(j)          all General Intangibles;

(k)          all Supporting Obligations;

(l)          all books and records relating to the Pledged Collateral; and

(m)          to the extent not covered by clauses (a) through (l) of this sentence, all other personal property of the Company, whether tangible or intangible and all Proceeds and products of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, any and all Proceeds of any insurance, indemnity, warranty or guaranty payable to the Company from time to time with respect to any of the foregoing.

Notwithstanding anything to the contrary contained in clauses (a) through (m) above, the security interest created by this Agreement shall not extend to, and the term “Pledged Collateral” shall not include, any Excluded Property to the extent, and only for so long as, such assets constitute Excluded Property. The Company shall from time to time at the reasonable request of the Lender (which request shall refer to this Section 2.1 ) give written notice to the Lender identifying in reasonable detail the Special Property (and stating in such notice that such Special Property constitutes “Excluded Property”) and shall provide to the Lender such other information regarding the Special Property as the Lender may reasonably request. From and after the date of this Agreement, the Company shall not permit to become effective in any document creating, governing or providing for any permit, lease or license, a provision that would prohibit the creation of a Lien on such permit, lease or license in favor of the Lender unless the Company believes, in its reasonable judgment, that such prohibition is usual and customary in transactions of such type.

Section 2.2.           Filings . (a) The Company hereby irrevocably authorizes the Lender at any time and from time to time to file, and will file at the Lender’s request and its sole cost and expense, in any relevant jurisdiction any financing statements (including fixture filings) and amendments thereto that the Lender deems necessary or advisable to perfect its security interest in the Pledged Collateral, including (i) whether the Company is an organization, the type of organization and any organizational identification number issued to the Company, (ii) describing the collateral therein as all assets or all personal property of the Company, (iii) any financing or continuation statements or other documents, to the extent describing the Pledged Collateral, without the signature of the Company where permitted by law, including the filing of a financing statement describing the Pledged Collateral as “all assets in which the Company now owns or hereafter acquires rights” and (iv) in the case of a financing statement filed as a fixture filing or covering Pledged Collateral constituting minerals or the like to be extracted or timber to be cut, a sufficient description of the real property to which Pledged Collateral relates. The Company agrees to provide all information described in the immediately preceding sentence to the Lender promptly upon request.

(b)          The Company hereby authorizes the Lender to file, and will file at the Lender’s request and its sole cost and expense, in any relevant jurisdiction, any financing statements or amendments thereto relating to the Pledged Collateral.

(c)          To the extent effective under applicable law, the Company hereby further authorizes the Lender to file, and will file at the Lender’s request and its sole cost and expense, filings with the United States Patent and Trademark Office or United States Copyright Office (or any successor office and any similar office in any other country), including this Agreement, the Intellectual Property Security Agreement, any other copyright, patent or trademark security agreement executed in connection herewith, and all other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by the Company hereunder, without the signature of the Company, and naming the Company, as debtor, and the Lender, as secured party.

ARTICLE III

PERFECTION; SUPPLEMENTS; FURTHER ASSURANCES;

USE OF PLEDGED COLLATERAL

Section 3.1.           Statements and Other Filings; Maintenance of Perfected Security Interest . The Company agrees that at the sole cost and expense of the Company, (a)  the Company shall (i) except for the security interests granted in the HSBC Deposit Accounts, maintain the security interest created by this Agreement in the Pledged Collateral as a perfected security interest and (ii) defend such security interest against the claims and demands of all Persons except Permitted Liens, (b) the Company shall furnish to the Lender from time to time statements and schedules further identifying and describing the Pledged Collateral and such other reports in connection with the Pledged Collateral as the Lender may reasonably request, all in reasonable detail, and (c) at any time and from time to time, upon the reasonable request of the Lender, the Company shall promptly and duly execute and deliver, and file and have recorded, such further instruments and documents and take such further action as the Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and the rights and powers herein granted, including entering into any deposit account control agreements and the filing of any financing statements, continuation statements and other documents (including this Agreement) under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interest created hereby, all in form reasonably satisfactory to the Lender and in such offices (including the United States Patent and Trademark Office and the United States Copyright Office) wherever required by law to perfect, continue and maintain a valid, enforceable, security interest in the Pledged Collateral as provided herein and to preserve the other rights and interests granted to the Lender hereunder, as against third parties, with respect to the Pledged Collateral.

Section 3.2.           Other Actions . In order to further insure the attachment, perfection and priority of, and the ability of the Lender to enforce, the Lender’s security interest in Pledged Collateral, the Company agrees, in each case at the Company’s own expense, to take the following actions with respect to the following Pledged Collateral:

(a)           Further Assurances; Pledge of Instruments and Chattel Paper .

(i)          At any time and from time to time, upon the request of the Lender and at the sole expense of the Company, the Company shall promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as the Lender may reasonably deem desirable to obtain the full benefits of this agreement and of the rights and powers herein granted, including (A) using its commercially reasonable efforts to secure all consents and approvals necessary or appropriate for the assignment to or for the benefit of the Lender of any License or Contract held by the Company and material to its business and to enforce the security interests granted hereunder and (B) filing any financing or continuation statements under the UCC with respect to the Liens granted hereunder or under any other Promissory Note Document as to those jurisdictions that are not UCC jurisdictions.

(ii)         Unless the Lender shall otherwise consent in writing (which consent may be revoked), the Company shall deliver to the Lender, all Pledged Collateral consisting of negotiable Documents, certificated securities, Chattel Paper and Instruments (in each case, accompanied by stock powers, allonges or other instruments of transfer executed in blank) promptly after the Company receives the same.

(iii)        Upon request by the Lender after the occurrence and during the continuance of an Event of Default, the Company shall obtain waivers or subordinations of Liens from landlords and mortgagees, and obtain bailee letters from bailees having possession of any Pledged Collateral that they hold for the benefit of the Lender.

(iv)        Upon request by the Lender after the occurrence and during the continuance of an Event of Default, the Company shall obtain acknowledgements from any issuer of Pledged Shares, in form and substance satisfactory to the Lender.

(v)         If the Company is or becomes the beneficiary of a letter of credit having a stated amount of over $50,000 it shall promptly, and in any event within two (2) Business Days after becoming a beneficiary, notify the Lender thereof, and shall thereafter enter into a tri-party agreement with the Lender and the issuer and/or confirmation bank with respect to Letter-of-Credit Rights assigning such Letter-of-Credit Rights to the Lender, all in form and substance reasonably satisfactory to the Lender.

(vi)        The Company shall take all steps necessary to grant the Lender control of all electronic chattel paper in accordance with the UCC and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act; provided that , prior to a request by the Lender after the occurrence and during the continuance of an Event of Default, such steps need only be taken to the extent such Pledged Collateral has a value in excess of $50,000 in the aggregate and to the extent such steps are commercially reasonable.

(vii)       The Company shall promptly, and in any event within fifteen (15) Business Days after the same is acquired by it, notify the Lender of any Commercial Tort Claim acquired by it and unless otherwise consented by the Lender, the Company shall thereafter enter into a supplement to this Agreement, granting to the Lender a Lien in such Commercial Tort Claim.

(b)           Maintenance of Records . The Company shall keep and maintain, at its own cost and expense, satisfactory and complete records of the Pledged Collateral, including a record of any and all payments received and any and all credits granted with respect to the Pledged Collateral and all other dealings with the Pledged Collateral. If requested by the Lender, the Company shall mark its books and records pertaining to the Pledged Collateral to evidence this Agreement and the Liens granted hereby. If the Company retains possession of any Chattel Paper or Instruments with the Lender’s consent, such Chattel Paper and Instruments shall be marked with the following legend: “This writing and the obligations evidenced or secured hereby are subject to the security interest of Lambda Investors LLC, as the Lender”; provided that with respect to Chattel Paper or Instruments in the possession of the Company on the date hereof, the Company shall cause such Chattel Paper or Instruments to be so marked within thirty (30) days after the date hereof.

(c)           Patent, Trademark and Copyright Collateral .

(i)          The Company shall notify the Lender immediately if it knows that any application or registration relating to any Significant Patent, Significant Trademark or Significant Copyright (now or hereafter existing) may become abandoned or dedicated, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding the Company’s ownership of any Significant Patent, Significant Trademark or Significant Copyright, its right to register the same, or to keep and maintain the same.

(ii)         Upon the Company, either itself or through any agent, employee, licensee or designee, filing an application for the registration of any Significant Patent, Significant Trademark or Significant Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency, the Company will give the Lender written notice within fifteen (15) days thereof, and, upon request of the Lender, the Company shall execute and deliver any and all patent and trademark security agreements or copyright security agreements as the Lender may request and in form and substance acceptable to the Lender to evidence the Lender’s Lien on such Significant Patent, Significant Trademark or Significant Copyright, and the General Intangibles of the Company relating thereto or represented thereby.

(iii)        The Company shall take all actions necessary or reasonably requested by the Lender to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of, each of the Significant Patents, Significant Trademarks and Significant Copyrights (now or hereafter existing), including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings.

(iv)        The Company shall promptly take such other actions as the Lender shall reasonably deem appropriate under the circumstances to protect such Significant Patent, Significant Trademark or Significant Copyright.

(d)           Motor Vehicles . Upon the request of the Lender, the Company shall deliver to the Lender originals of the certificates of title or ownership for the motor vehicles (and any other Equipment covered by certificates of title or ownership) owned by it with the Lender listed as lienholder therein. Such requirement shall apply to the Company so long as the value of all such motor vehicles (and such Equipment) as to which the Company has not delivered a certificate of title or ownership is over $50,000.

(e)           Accounts . The Company shall not rescind or cancel any obligations evidenced by any Account or modify any term thereof or make any adjustment with respect thereto except in the ordinary course of business consistent with prudent business practice, or extend or renew any such obligations except in the course of its business or compromise or settle any dispute, claim, suit or legal proceeding relating thereto or sell any Account or interest therein except in the course of business. The Company shall timely fulfill all obligations on its part to be fulfilled under or in connection with the Accounts. The Company shall cause to be collected from the Account Debtor of each of the Accounts, as and when due in the course of business (including Accounts that are delinquent, such Accounts to be collected in accordance with generally accepted commercial collection procedures), any and all amounts owing under or on account of such Account, and apply forthwith upon receipt thereof all such amounts as are so collected to the outstanding balance of such Account, except that the Company may, with respect to an Account, allow in the ordinary course of business (i) a refund or credit due as a result of returned or damaged or defective merchandise and (ii) such extensions of time to pay amounts due in respect of Accounts and such other modifications of payment terms or settlements in respect of Accounts as shall be commercially reasonable in the circumstances, all in accordance with the Company’s ordinary course of business consistent with its collection practices as in effect from time to time. The costs and expenses (including attorneys’ fees) of collection, in any case, whether incurred by the Company or the Lender, shall be paid by the Company.

Section 3.3.           Supplements; Further Assurances . The Company shall take such further actions, and execute and deliver to the Lender such additional assignments, agreements, supplements, powers and instruments, as the Lender may in its reasonable judgment deem necessary or appropriate, wherever required by law, in order to perfect, preserve and protect the security interest in the Pledged Collateral as provided herein and the rights and interests granted to the Lender hereunder, to carry into effect the purposes hereof or better to assure and confirm unto the Lender the Pledged Collateral or permit the Lender to exercise and enforce its rights, powers and remedies hereunder with respect to any Pledged Collateral. Without limiting the generality of the foregoing, the Company shall make, execute, endorse, acknowledge, file or refile and/or deliver to the Lender from time to time upon reasonable request such lists, descriptions and designations of the Pledged Collateral, copies of warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, supplements, additional security agreements, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments as the Lender shall reasonably request. If an Event of Default has occurred and is continuing, the Lender may institute and maintain, in its own name or in the name of the Company, such suits and proceedings as the Lender may be advised by counsel shall be necessary or expedient to prevent any impairment of the security interest in or the perfection thereof in the Pledged Collateral. All of the foregoing shall be at the sole cost and expense of the Company.

Section 3.4.           Transfers of Pledged Collateral . The Company shall not sell, convey, assign or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral pledged by it hereunder except in the ordinary course of business.

ARTICLE IV

REPRESENTATIONS, WARRANTIES AND COVENANTS

The Company represents, warrants and covenants as follows:

Section 4.1.           Title . Except for the security interest granted pursuant to this Agreement, the Company owns and, as to Pledged Collateral acquired by it from time to time after the date hereof, will own the rights in each item of Pledged Collateral pledged by it hereunder free and clear of any and all Liens or claims of others other than Permitted Liens. In addition, except for the security interest granted pursuant to this Agreement, no Liens or claims exist on the Securities Collateral. The Company has not filed, nor authorized any third party to file a financing statement or other public notice of lien or encumbrance with respect to all or any part of the Pledged Collateral on file or of record in any public office, except such as have been filed in favor of the Lender pursuant to this Agreement or as are permitted by Lender or pursuant to the Promissory Note. No Person other than the Lender has control or possession of all or any part of the Pledged Collateral, except for any Pledged Collateral in transit, out for repair or otherwise off-site in the ordinary course of business.

Section 4.2.           Validity of Security Interest . The security interest in and Lien on the Pledged Collateral granted to the Lender for the benefit of the Lender constitutes (a) a legal and valid security interest in all the Pledged Collateral securing the payment and performance of the Secured Obligations and (b) a perfected security interest in all the Pledged Collateral. The security interest and Lien granted to the Lender for the benefit of the Lender pursuant to this Agreement in and on the Pledged Collateral (other than the HSBC Deposit Accounts) will at all times constitute a perfected, continuing first-priority security interest therein, subject only to Permitted Liens.

Section 4.3.           Defense of Claims: Transferability of Pledged Collateral . The Company shall, at its own cost and expense, defend title to the Pledged Collateral pledged by it hereunder and the security interest therein and Lien thereon granted to the Lender and the priority thereof against all material claims and demands of all Persons, at its own cost and expense, at any time claiming any interest therein adverse to the Lender. There is no agreement, and the Company shall not enter into any agreement, or take any other action, that would restrict the transferability of any of the Pledged Collateral (except for any immaterial portion of Pledged Collateral) or otherwise impair or conflict with the Company’s obligations or the rights of the Lender hereunder.

Section 4.4.           Other Financing Statements . The Company has not filed, nor authorized any third party to file (nor will there be any) valid or effective financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Pledged Collateral other than financing statements and other statements and instruments relating to the Loan. So long as any of the Secured Obligations remain unpaid, the Company shall not execute, authorize or permit to be filed in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) relating to any Pledged Collateral, except financing statements and other statements and instruments filed or to be filed in respect of and covering the security interests granted by the Company under this Agreement.

Section 4.5.           Name; Jurisdiction of Organization .

(a)          The Company shall comply with the provisions of Section 6(a), Section 7(a) , and Section 7(c) of the Promissory Note.

(b)          The Lender may rely on opinions of counsel as to whether any UCC financing statement of the Company needs to be amended.

Section 4.6.           Location of Inventory and Equipment . The Company shall not move any Equipment to any location other than one within the continental United States and, with respect to any material part of Equipment, until (a) it shall have given the Lender not less than 30 days’ prior written notice of its intention so to do, clearly describing such new location within the continental United States and providing such other information in connection therewith as the Lender may request and (b) with respect to such new location, the Company shall have taken all action reasonably satisfactory to the Lender to maintain the perfection and priority of the security interest of the Lender for the benefit of the Lender in the Pledged Collateral intended to be granted hereby, including using commercially reasonable efforts to obtain waivers of landlord’s or warehousemen’s and/or bailee’s liens with respect to such new location, if applicable, and if requested by the Lender.

Section 4.7.           Consents, etc . In the event that the Lender desires to exercise any remedies, voting or consensual rights or attorney-in-fact powers set forth in this Agreement and determines it necessary to obtain any approvals or consents of any Governmental Authority or any other Person therefor, then, upon the reasonable request of the Lender, the Company agrees to use its commercially reasonable efforts (and, during an Event of Default, its best efforts) to assist and aid the Lender to obtain, as soon as practicable, any necessary approvals or consents for the exercise of any such remedies, rights, and powers.

Section 4.8.           Pledged Collateral . All information set forth herein, including the schedules annexed hereto, and all information contained in any documents, schedules, and lists heretofore delivered to the Lender in connection with this Agreement, relating to the Pledged Collateral, is accurate and complete in all material respects.

Section 4.9.           Insurance . In the event that the proceeds of any insurance claim are paid after the Lender has exercised its right to foreclose after an Event of Default, such cash proceeds shall be paid to the Lender to satisfy any deficiency remaining after such foreclosure.

Section 4.10.          Payment of Taxes; Compliance with Laws; Contesting Liens; Claims . The Company represents and warrants that all Claims imposed upon or assessed against the Pledged Collateral (other than any immaterial part thereof) have been paid and discharged except to the extent such Claims constitute a Lien not yet due and payable, a Contested Lien or a Permitted Lien. The Company shall comply with all Requirements of Law applicable to the Pledged Collateral the failure to comply with which would, individually or in the aggregate, have a Material Adverse Effect. The Company may at its own expense contest the validity, amount or applicability of any Claim so long as such contest is in good faith and the Company has set aside adequate reserves to pay such Claim. Notwithstanding the foregoing provisions of this Section 4.10 , (a) no contest of any such obligation may be pursued by the Company if such contest would expose the Lender to (i) any possible criminal liability or (ii) any additional civil liability for failure to comply with such obligations unless the Company shall have furnished a bond or other security therefor satisfactory to the Lender and (b) if at any time payment or performance of any obligation contested by the Company pursuant to this Section 4.10 shall become necessary to prevent the imposition of remedies because of nonpayment, the Company shall pay or perform the same in sufficient time to prevent the imposition of remedies in respect of such default or prospective default.

Section 4.11.         Access to Pledged Collateral, Books and Records; Other Information . The Lender, its agents, accountants and attorneys shall have full and free access to visit and inspect all of the Pledged Collateral upon reasonable notice during normal business hours; provided that , if an Event of Default exists, such visit and inspection may occur at any time.

Section 4.12.         Instruments, Letter of Credit Rights and Chattel Paper . Schedule 3 hereto lists all Instruments, Letter of Credit Rights, and Chattel Paper of the Company.

Section 4.13.         Intellectual Property Collateral . The Company does not have any interest in, or title to, any material Patent, Trademark or Copyright except as set forth in Schedule 4 hereto.

Section 4.14.         Deposit Accounts and Securities Accounts .

(a)           Schedule 5 lists all Deposit Accounts of the Company and its subsidiaries as of the date hereof .

(b)          All Deposit Accounts of the Company (other than the HSBC Deposit Accounts) are Perfected Deposit Accounts. Except for transfers of proceeds of the Loan in the ordinary course of the Company’s business and that are made at a time when no Event of Default exists, the Company shall at all times maintain the proceeds of the Loan in a Perfected Deposit Account. The Company shall not establish any additional Deposit Account unless such additional Deposit Account is a Perfected Deposit Account.

(c)          The Company shall not transfer any of the proceeds of the Loan to any subsidiary unless (i) such transfer is needed by such subsidiary (and such transfer may not exceed the amount needed after utilization by such subsidiary of all other available sources of funds) to conduct operations in the ordinary course of business consistent with past practices and such proceeds are so utilized within thirty (30) days after the date of such transfer, and (ii) such transfer is in the form of a loan secured by such funds and all other assets of such subsidiary, which secured loan is evidenced by an Instrument that constitutes Pledged Collateral and has been delivered to the Lender as required pursuant to Section 3.2(a)(ii) of this Agreement.

(d)          Neither the Company nor any of its subsidiaries has any Securities Accounts as of the date hereof. The Company shall not, and shall not permit its subsidiaries to, establish any Securities Account.

ARTICLE V

CERTAIN PROVISIONS CONCERNING SECURITIES COLLATERAL

Section 5.1.           Representations and Warranties . The Company represents and warrants to the Lender that:

(a)          The Company is, and at the time of delivery of the Pledged Shares to the Lender will be, the sole holder of record and the sole beneficial owner of the Pledged Collateral free and clear of any Lien thereon or affecting the title thereto, except for any Lien created by this Agreement and except Permitted Liens. The Company is and at the time of delivery of the Pledged Indebtedness to the Lender will be, the sole owner of the Pledged Collateral free and clear of any Lien thereon or affecting title thereto, except for any Lien created by this Agreement and except Permitted Liens;

(b)          All of the Pledged Shares have been duly authorized, validly issued and are fully paid and non-assessable; the Pledged Indebtedness issued by any affiliate of the Company has been duly authorized, authenticated or issued and delivered by, and is the legal, valid and binding obligations of the Pledged Entities, and no such Pledged Entity is in default thereunder;

(c)          The Company has the right and requisite authority to pledge, assign, transfer, deliver, deposit and set over the Pledged Collateral pledged by the Company to the Lender as provided herein;

(d)          None of the Pledged Shares or Pledged Indebtedness has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject;

(e)          All of the Pledged Shares are presently owned by the Company, and, to the extent certificated, are presently represented by the certificates listed on Part A of Schedule 1 hereto. As of the date hereof, there are no existing options, warrants, calls or commitments of any character whatsoever relating to the Pledged Shares;

(f)          No consent, approval, authorization or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the pledge by the Company of the Securities Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Company, or for the exercise by the Lender of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally;

(g)          The pledge, assignment and delivery of the Securities Collateral pursuant to this Agreement will create a valid first priority Lien and security interest in favor of the Lender in the Pledged Collateral and the Proceeds thereof, securing the payment of the Secured Obligations, subject to no other Lien, other than Permitted Liens;

(h)          The Pledged Shares constitute (i) 100% of the issued and outstanding shares of Capital Securities of each Pledged Entity that is a Domestic Subsidiary, (ii) 100% of the issued and outstanding non-voting Capital Securities of each Pledged Entity that is a Foreign Subsidiary owned by the Company or (iii) 65% (or such other percentage as is required by this Agreement) of the issued and outstanding voting stock of each Pledged Entity that is a Foreign Subsidiary; and

(i)          As of the date hereof, the Company owns no Capital Securities in any subsidiary other than the Pledged Entities.

The representations and warranties set forth in this Section 5.1 shall survive the execution and delivery of this Agreement.

Section 5.2.           Covenants . The Company covenants and agrees that:

(a)          Without the prior written consent of the Lender, the Company will not sell, assign, transfer, dispose of, pledge, or otherwise encumber any of its rights in or to the Securities Collateral, or any unpaid dividends, interest or other distributions or payments with respect to the Securities Collateral or grant a Lien in the Securities Collateral, unless permitted by the Promissory Note;

(b)          The Company will, at its expense, promptly execute, acknowledge, deliver and, if requested, file all such instruments and take all such actions as the Lender from time to time may request in order to ensure to the Lender the benefits of the Liens in and to the Pledged Collateral intended to be created by this Agreement, including the filing of any necessary UCC financing statements, which may be filed by the Lender with or (to the extent permitted by law) without the signature of the Company, and will cooperate with the Lender, at the Company’s expense, in obtaining all necessary approvals and making all necessary filings under federal, state, local or foreign law in connection with such Liens or any sale or transfer of the Securities Collateral;

(c)          The Company has and will defend the title to the Securities Collateral and the Liens of the Lender in the Securities Collateral against the claim of any Person and will maintain and preserve such Liens except as against Permitted Liens;

(d)          The Company will, upon obtaining ownership of any additional Capital Securities, or promissory notes or instruments of a Pledged Entity, or Capital Securities or promissory notes or instruments otherwise required to be pledged to the Lender pursuant to any of the Promissory Note Documents, which Capital Securities, notes or instruments are not already Pledged Collateral, promptly (and in any event within fifteen (15) Business Days) deliver to the Lender a Pledge Amendment, duly executed by the Company, in substantially the form of Exhibit 1 hereto (a “ Pledge Amendment ”) in respect of any such additional Capital Securities, notes or instruments, pursuant to which the Company shall pledge to the Lender all of such additional Capital Securities, notes and instruments. The Company hereby authorizes the Lender to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares and Pledged Indebtedness listed on any Pledge Amendment delivered to the Lender shall for all purposes hereunder be considered Pledged Collateral; and

(e)          If following a change in the relevant sections of the Code or the regulations, rules, rulings, notices or other official pronouncements issued or promulgated thereunder, the Lender concludes that with respect to any Foreign Subsidiary which has not already had all of its stock pledged pursuant to this Agreement that a pledge of additional (in the case of a direct Foreign Subsidiary) or all (in the case of any indirect Foreign Subsidiary) of the total combined voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote, would not cause any undistributed earnings of a Foreign Subsidiary as determined for United States Federal income tax purposes to be treated as a deemed dividend to a Foreign Subsidiary’s United States parent for United States Federal income tax purposes, then that portion of such Foreign Subsidiary’s outstanding Capital Stock not theretofore pledged pursuant to this Agreement shall be pledged upon entering all necessary documents to the Lender pursuant to this Agreement (or another pledge agreement in substantially similar form, if needed) to the extent that entering into such agreement is permitted by the laws of the respective foreign jurisdiction; provided , however , that the amount of additional stock that may be pledged pursuant to this Section 5.2(e) shall not exceed the amount of such stock that can be pledged without causing any such undistributed earnings of a Foreign Subsidiary to be treated as a deemed dividend; provided , further that if the Company disagrees with the determination of the Lender, the Company shall have thirty (30) days to provide the Lender with an opinion of counsel reasonably satisfactory to the Lender that concludes that such pledge would cause adverse United States Federal income tax consequences, in which case, such additional pledge shall not be required. All reasonable out-of-pocket expenses incurred by the Lender to obtain such an opinion shall be paid by the Company.

Section 5.3.           Company’s Rights . As long as no Event of Default shall have occurred and be continuing and until written notice shall be given to the Company in accordance with Section 6.2 hereof:

(a)          The Company shall have the right, from time to time, to vote and give consents with respect to the Pledged Collateral, or any part thereof for all purposes not inconsistent with the provisions of this Agreement, the Promissory Note or any other Promissory Note Document;

(b)          The Company shall be entitled, from time to time, to collect and receive for its own use all cash dividends and interest paid in respect of the Pledged Shares and Pledged Indebtedness; provided , however , that until actually paid all rights to such distributions shall remain subject to the Lien created by this Agreement.

Section 5.4.           Defaults and Remedies; Proxy.

(a)          Upon the occurrence of an Event of Default and during the continuation of such Event of Default, and concurrently with written notice to the Company, the Lender (personally or through an agent) is hereby authorized and empowered to transfer and register in its name or in the name of its nominee the whole or any part of the Securities Collateral, to exchange certificates or instruments representing or evidencing Securities Collateral for certificates or instruments of smaller or larger denominations, to exercise the voting and all other rights as a holder with respect thereto, to collect and receive all cash dividends, interest, principal and other distributions made thereon, to exercise all remedies set forth in Article VI or under applicable law and to otherwise act with respect to the Securities Collateral as though the Lender was the outright owner thereof. THE COMPANY HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS THE LENDER DURING THE CONTINUANCE OF AN EVENT OF DEFAULT AS THE PROXY AND ATTORNEY-IN-FACT OF THE COMPANY WITH RESPECT TO THE SECURITIES COLLATERAL, INCLUDING THE RIGHT TO VOTE THE PLEDGED SHARES, WITH FULL POWER OF SUBSTITUTION TO DO SO. THE APPOINTMENT OF THE LENDER AS PROXY AND ATTORNEY-IN-FACT IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE TERMINATION DATE. IN ADDITION TO THE RIGHT TO VOTE THE PLEDGED SHARES DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, THE APPOINTMENT OF THE LENDER AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF THE PLEDGED SHARES WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY DURING THE CONTINUANCE OF AN EVENT OF DEFAULT AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY PLEDGED SHARES ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER OF THE PLEDGED SHARES OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE OF AN EVENT OF DEFAULT. NOTWITHSTANDING THE FOREGOING, THE LENDER SHALL NOT HAVE ANY DUTY TO EXERCISE ANY SUCH RIGHT OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO.

(b)          If, at the original time or times appointed for the sale of the whole or any part of the Securities Collateral, the highest bid, if there be but one sale, shall be inadequate to discharge in full all the Secured Obligations, or if the Securities Collateral be offered for sale in lots, if at any of such sales, the highest bid for the lot offered for sale would indicate to the Lender, in its discretion, that the proceeds of the sales of the whole of the Securities Collateral would be unlikely to be sufficient to discharge all the Secured Obligations, the Lender may, on one or more occasions and in its discretion, postpone any of said sales by public announcement at the time of sale or the time of previous postponement of sale, and no other notice of such postponement or postponements of sale need be given, any other notice being hereby waived; provided , however , that any sale or sales made after such postponement shall be after not less than ten (10) days’ notice to the Company.

(c)          If, at any time when the Lender shall determine to exercise its right to sell the whole or any part of the Securities Collateral hereunder, such Securities Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as amended (or any similar statute then in effect, the “ Act ”), the Lender may, in its discretion (subject only to applicable Requirements of Law), sell such Securities Collateral or part thereof by private sale in such manner and under such circumstances as the Lender may deem necessary or advisable, but subject to the other requirements of this Agreement, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event, the Lender in its discretion (x) may, in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Securities Collateral or part thereof could be or shall have been filed under said Act (or similar statute), (y) may approach and negotiate with a single possible purchaser to effect such sale, and (z) may restrict such sale to a purchaser who is an accredited investor under the Act and who will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such Securities Collateral or any part thereof. In addition to a private sale as provided above in this Article V , if any of the Securities Collateral shall not be freely distributable to the public without registration under the Act (or similar statute) at the time of any proposed sale pursuant to this Article, then the Lender shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable Requirements of Law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions:

(i)          as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale;

(ii)         as to the content of legends to be placed upon any certificates representing the Securities Collateral sold in such sale, including restrictions on future transfer thereof;

(iii)        as to the representations required to be made by each Person bidding or purchasing at such sale relating to that Person’s access to financial information about the Company and such Person’s intentions as to the holding of the Pledged Collateral so sold for investment for its own account and not with a view to the distribution thereof; and

(iv)        as to such other matters as the Lender may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the bankruptcy code, the UCC and other laws affecting the enforcement of creditors’ rights and the Act and all applicable state securities laws.

(d)          The Company recognizes that the Lender may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof in accordance with clause (c) above. The Company also acknowledges that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. The Lender shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the Pledged Entity to register such securities for public sale under the Act, or under applicable state securities laws, even if the Company and the Pledged Entity would agree to do so.

(e)          The Company agrees to the maximum extent permitted by applicable law that following the occurrence and during the continuance of an Event of Default it will not at any time plead, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law not or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Pledged Collateral or the possession thereof by any purchaser at any sale hereunder, and the Company waives the benefit of all such laws to the extent it lawfully may do so. The Company agrees that it will not interfere with any right, power and remedy of the Lender provided for in this Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by the Lender of any one or more of such rights, powers or remedies. No failure or delay on the part of the Lender to exercise any such right, power or remedy and no notice or demand which may be given to or made upon the Company by the Lender with respect to any such remedies shall operate as a waiver thereof, or limit or impair the Lender’s right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against the Company in any respect.

(f)          The Company further agrees that a breach of any of the covenants contained in this Section 5.4 will cause irreparable injury to the Lender, that the Lender shall have no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 5.4 shall be specifically enforceable against the Company, and the Company hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that the Secured Obligations are not then due and payable in accordance with the agreements and instruments governing and evidencing such obligations.

ARTICLE VI

DEFAULTS; REMEDIES

Section 6.1.           Remedies . Upon the occurrence and during the continuance of any Event of Default the Lender may from time to time exercise in respect of the Pledged Collateral, in addition to the other rights and remedies provided for herein or otherwise available to it, the following remedies:

(a)          Personally, or by agents or attorneys, immediately take possession of the Pledged Collateral or any part thereof, from the Company or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon the Company’s premises where any of the Pledged Collateral is located, remove such Pledged Collateral, remain present at such premises to receive copies of all communications and remittances relating to the Pledged Collateral and use in connection with such removal and possession any and all services, supplies, aids and other facilities of the Company;

(b)          Demand, sue for, collect or receive any money or property at any time payable or receivable in respect of the Pledged Collateral including instructing the obligor or obligors on any agreement, instrument or other obligation constituting part of the Pledged Collateral to make any payment by the terms of such agreement, instrument or other obligation directly to the Lender, and in connection with any of the foregoing, compromise, settle, extend the time for payment and make other modifications with respect thereto; provided , however , that in the event that any such payments are made directly to the Company, prior to receipt by any such obligor of such instruction, the Company shall segregate all amounts received pursuant thereto in trust for the benefit of the Lender and shall promptly (but in no event later than one (1) Business Day after receipt thereof) pay such amounts to the Lender;

(c)          Sell, assign, grant a license to use or otherwise liquidate, or direct the Company to sell, assign, grant a license to use or otherwise liquidate, any and all investments made in whole or in part with the Pledged Collateral or any part thereof, and take possession of the proceeds of any such sale, assignment, license or liquidation;

(d)          Take possession of the Pledged Collateral or any part thereof, by directing the Company in writing to deliver the same to the Lender at any place or places so designated by the Lender, in which event the Company shall at its own expense: (i) forthwith cause the same to be moved (to the extent requested) to the place or places designated by the Lender and therewith delivered to the Lender, (ii) store and keep any Pledged Collateral so delivered to the Lender at such place or places pending further action by the Lender and (iii) while the Pledge Collateral shall be so stored and kept, provide such security and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition. Upon application to a court of equity having jurisdiction, the Lender shall be entitled to a decree requiring specific performance by the Company of such obligation;

(e)          Withdraw all moneys, instruments, securities and other property in the Company’s deposit accounts for application to the Secured Obligations;

(f)          Exercise any and all rights as beneficial and legal owner of the Pledged Collateral, including perfecting assignment of and exercising any and all voting, consensual and other rights and powers with respect to any Pledged Collateral; and

(g)          Exercise all the rights and remedies of a secured party on default under the UCC, and the Lender may also in its sole discretion, without notice, sell, assign or grant a license to use the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker’s board or at any of the Lender’s offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Lender may deem commercially reasonable. The Lender or any of its affiliates may be the purchaser, licensee, assignee or recipient of any or all of the Pledged Collateral at any such sale. Each purchaser, assignee, licensee or recipient at any such sale shall acquire the property sold, assigned or licensed absolutely free from any claim or right on the part of the Company, and the Company hereby waives, to the fullest extent permitted by law, all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Lender shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Company hereby waives, to the fullest extent permitted by law, any claims against the Lender arising by reason of the fact that the price at which any Pledged Collateral may have been sold, assigned or licensed at such a private sale was less than the price which might have been obtained at a public sale, even if the Lender accepts the first offer received and does not offer such Pledged Collateral to more than one offeree.

Section 6.2.           Notice of Sale . The Company acknowledges and agrees that, to the extent notice of sale or other disposition of Pledged Collateral shall be required by law, ten (10) days’ prior notice to the Company of the time and place of any public sale or of the time after which any private sale or other intended disposition is to take place shall be commercially reasonable notification of such matters. No notification need be given to the Company if it has signed, after the occurrence of an Event of Default, a statement renouncing or modifying any right to notification of sale or other intended disposition.

Section 6.3.           Waiver of Notice and Claims . The Company hereby waives, to the fullest extent permitted by applicable law, notice or judicial hearing in connection with the Lender’s taking possession or the Lender’s disposition of any of the Pledged Collateral, including any and all prior notice and hearing for any prejudgment remedy or remedies and any such right which the Company would otherwise have under law, and the Company hereby further waives, to the fullest extent permitted by applicable law: (a) all damages occasioned by such taking of possession, (b) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Lender’s rights hereunder, and (c) all rights of redemption, appraisal, valuation, stay, extension or moratorium now or hereafter in force under any applicable law. The Lender shall not be liable for any incorrect or improper payment made pursuant to this Article VI in the absence of gross negligence or willful misconduct. Any sale of, or the grant of options to purchase, or any other realization upon, any Pledged Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the Company therein and thereto, and shall be a perpetual bar both at law and in equity against the Company and against any and all Persons claiming or attempting to claim the Pledged Collateral so sold, optioned or realized upon, or any part thereof, from, through or under the Company.

Section 6.4.           Certain Sales of Pledged Collateral . The Company recognizes that, by reason of certain prohibitions contained in law, rules, regulations or orders of any Governmental Authority, the Lender may be compelled, with respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who meet the requirements of such Governmental Authority. The Company acknowledges that any such sales may be at prices and on terms less favorable to the Lender than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such restricted sale shall be deemed to have been made in a commercially reasonable manner and that, except as may be required by applicable law, the Lender shall have no obligation to engage in public sales.

Section 6.5.           No Waiver; Cumulative Remedies.

(a)          No failure on the part of the Lender to exercise, no course of dealing with respect to, and no delay on the part of the Lender in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy; nor shall the Lender be required to look first to, enforce or exhaust any other security, collateral or guaranties. The remedies herein provided are cumulative and are not exclusive of any remedies provided by law.

(b)          In the event that the Lender shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Lender, then and in every such case, the Company and the Lender shall be restored to their respective former positions and rights hereunder with respect to the Pledged Collateral, and all rights, remedies and powers of the Lender shall continue as if no such proceeding had been instituted.

Section 6.6.           Certain Additional Actions Regarding Intellectual Property . If any Event of Default shall have occurred and be continuing, upon the written demand of the Lender, the Company shall execute and deliver to the Lender an assignment or assignments of the registered Patents, Trademarks and/or Copyrights and Goodwill and such other documents as are necessary or appropriate to carry out the intent and purposes hereof. Within five (5) Business Days of written notice thereafter from the Lender, the Company shall make available to the Lender, to the extent within the Company’s power and authority, such personnel in the Company’s employ on the date of the Event of Default as the Lender may reasonably designate to permit the Company to continue, directly or indirectly, to produce, advertise and sell the products and services sold by the Company under the registered Patents, Trademarks and/or Copyrights, and such persons shall be available to perform their prior functions on the Lender’s behalf.

Section 6.7.           Grant of License . For the purpose of enabling the Lender to exercise rights and remedies under this Article VI (including, without limiting the terms of this Article VI , in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of Pledged Collateral) at such time as the Lender shall be lawfully entitled to exercise such rights and remedies, the Company hereby grants to the Lender an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to the Company) to use, license or sublicense any Patent, Trademark, trade secret or Copyright now owned or hereafter acquired by the Company, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used of the compilation or printout thereof.

ARTICLE VII

PROCEEDS OF CASUALTY EVENTS AND COLLATERAL DISPOSITIONS;
APPLICATION OF PROCEEDS

Section 7.1.           Application of Proceeds . The proceeds received by the Lender in respect of any sale of, collection from or other realization upon all or any part of the Pledged Collateral pursuant to the exercise by the Lender of its remedies shall be applied, together with any other sums then held by the Lender, in accordance with the Promissory Note. In the event that any such proceeds are insufficient to pay in full the items described in the Promissory Note, the Company and any guarantor party to the applicable Promissory Note Documents shall remain liable, jointly and severally, for any deficiency.

ARTICLE VIII

MISCELLANEOUS

Section 8.1.           Concerning Lender.

(a)          The Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equivalent to that which the Lender, in its individual capacity, accords its own property consisting of similar instruments or interests, it being understood that the Lender shall not have responsibility for (i) ascertaining or taking action with respect to calls, conversations, exchanges, maturities, tenders or other matters relating to any Securities Collateral, whether or not the Lender has or is deemed to have knowledge of such matters or (ii) taking any necessary steps to preserve rights against any person with respect to any Pledged Collateral.

(b)          If any item of Pledged Collateral also constitutes collateral granted to the Lender under any other deed of trust, mortgage, security agreement, pledge or instrument of any type, in the event of any conflict between the provisions hereof and the provisions of such other deed of trust, mortgage, security agreement, pledge or instrument of any type in respect of such collateral, the Lender, in its sole discretion, shall select which provision or provisions shall control.

Section 8.2.           Lender May Perform; Lender Appointed Attorney-In-Fact . If the Company shall fail to perform any covenants contained in this Agreement (including the Company’s covenants to (a) pay the premiums in respect of all required insurance policies hereunder, (b) pay Claims, (c) make repairs, (d) discharge Liens or (e) pay or perform any obligations of the Company under any Pledged Collateral) or if any representation or warranty on the part of the Company contained herein shall be breached, the Lender may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach, and may expend funds for such purpose; provided , however , that the Lender shall in no event be bound to inquire into the validity of any tax, lien, imposition or other obligation which the Company fails to pay or perform as and when required hereby and which the Company does not contest in accordance in accordance with the provisions of Section 4.10 hereof. Any and all amounts so expended by the Lender shall be paid by the Company in accordance with the provisions of the Promissory Note. Neither the provisions of this Section 8.2 nor any action taken by the Lender pursuant to the provisions of this Section 8.2 shall prevent any such failure to observe any covenant contained in this Agreement nor any breach of representation or warranty from constituting an Event of Default. The Company hereby appoints the Lender its attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company, or otherwise, from time to time in the Lender’s discretion to take any action and to execute any instrument consistent with the terms of the Promissory Note, this Agreement and any of the other Promissory Note Documents which the Lender may deem necessary or advisable to accomplish the purposes thereof. The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable for the term hereof. The Company hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof.

Section 8.3.           Continuing Security Interest; Assignment . This Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) be binding upon the Company, its respective successors and assigns and (b) inure, together with the rights and remedies of the Lender hereunder, to the benefit of the Lender and each of its respective successors, transferees and assigns. No other Persons (including any other creditor of the Company) shall have any interest herein or any right or benefit with respect hereto. Without limiting the generality of the foregoing clause (b) , any the Lender may assign or otherwise transfer any obligation held by it secured by this Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to the Lender, herein or otherwise, subject however, to the provisions of the Promissory Note.

Section 8.4.           Termination; Release . The Pledged Collateral or any portion thereof shall be released from the Lien of this Agreement upon its sale in the ordinary course of business; provided that a sale of all or any material portion of the Pledged Collateral, whether in one or more transactions, shall only be released with the prior written consent of the Lender. Upon termination hereof or any release of Pledged Collateral in accordance with the provisions of the Promissory Note, the Lender shall, promptly upon the request and at the sole cost and expense of the Company, assign, transfer and deliver to the Company, against receipt and without recourse to or warranty by the Lender except as to the fact that the Lender has not encumbered the released assets, such of the Pledged Collateral to be released (in the case of a release) as may be in possession of the Lender and as shall not have been sold or otherwise applied pursuant to the terms hereof, and, with respect to any other Pledged Collateral, execute and deliver proper documents and instruments (including UCC-3 termination statements or releases) acknowledging the termination hereof or the release of such Pledged Collateral, as the case may be.

Section 8.5.           Modification in Writing . No amendment, modification, supplement, termination or waiver of or to any provision hereof, nor consent to any departure by the Company therefrom, shall be effective unless the same (i) shall be made in accordance with the terms of the Promissory Note, (ii) shall be in writing and signed by the Lender or, if applicable, the requisite Noteholder as required under the Promissory Note, and (iii) shall expressly state that the intent of such writing is to amend, modify or waive a right under this Agreement. Any amendment, modification or supplement of or to any provision hereof, any waiver of any provision hereof and any consent to any departure by the Company from the terms of any provision hereof shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement or any other document evidencing the Secured Obligations, no notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances.

Section 8.6.           Notices . Unless otherwise provided herein or in the Promissory Note, any notice or other communication herein required or permitted to be given shall be given in the manner and become effective as set forth in the Promissory Note, as to the Company, addressed to it at the address of the Company set forth in the Promissory Note and as to the Lender, addressed to it at the address set forth in the Promissory Note, or in each case at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 8.6 .

Section 8.7.           Governing Law . THE INTERNAL LAW OF THE STATE OF DELAWARE SHALL GOVERN AND BE USED TO CONSTRUE AND ENFORCE THIS AGREEMENT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

Section 8.8.           Severability of Provisions . Any provision hereof which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

Section 8.9.           Execution in Counterparts . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all such counterparts together shall constitute one and the same agreement.

Section 8.10.          Business Days . In the event any time period or any date provided in this Agreement ends or falls on a day other than a Business Day, then such time period shall be deemed to end and such date shall be deemed to fall on the next succeeding Business Day, and performance herein may be made on such Business Day, with the same force and effect as if made on such other day.

Section 8.11.          Waiver of Stay . The Company covenants (to the extent effective under and permitted by applicable law) that in the event that the Company or any property or assets of the Company shall hereafter become the subject of a voluntary or involuntary proceeding under the bankruptcy code or the Company shall otherwise be a party to any federal or state bankruptcy, insolvency, moratorium or similar proceeding that provides for an automatic stay or any similar provision in any such law, then, in any such case, whether or not the Lender has commenced foreclosure proceedings under this Agreement, the Company shall not, and the Company hereby expressly waives its right to (to the extent effective under and permitted by applicable law) at any time insist upon, plead or in any whatsoever, claim or take the benefit or advantage of any such automatic stay or such similar provision as it relates to the exercise of any of the rights and remedies (including any foreclosure proceedings) available to the Lender as provided in this Agreement, in any other Security Document or any other document relating to the Secured Obligations. The Company further covenants (to the extent effective under and permitted by applicable law) that it will not hinder, delay or impede the execution of any power granted herein to the Lender, but will suffer and permit the execution of every such power as though no law relating to any stay or similar provision had been enacted.

Section 8.12.          No Credit for Payment of Taxes or Imposition . The Company shall not be entitled to any credit against the principal, premium, if any, or interest payable under the Promissory Note, and the Company shall not be entitled to any credit against any other sums which may become payable under the terms thereof or hereof, by reason of the payment of any tax on the Pledged Collateral or any part thereof.

Section 8.13.          No Claims Against Lender . Nothing contained in this Agreement shall constitute any consent or request by the Lender, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Pledged Collateral or any part thereof.

Section 8.14.          No Release . Nothing set forth in this Agreement shall relieve the Company from the performance of any term, covenant, condition or agreement on the Company’s part to be performed or observed under or in respect of any of the Pledged Collateral or from any liability to any Person under or in respect of any of the Pledged Collateral or shall impose any obligation on the Lender to perform or observe any such term, covenant, condition or agreement on the Company’s part to be so performed or observed or shall impose any liability on the Lender for any act or omission on the part of the Company relating thereto or for any breach of any representation or warranty on the part of the Company contained in this Agreement, the Promissory Note or the other Promissory Note Documents, or under or in respect of the Pledged Collateral or made in connection herewith or therewith. The obligations of the Company contained in this Section 8.14 shall survive the termination hereof and the discharge of the Company’s other obligations under this Agreement, the Promissory Note, and the other Promissory Note Documents.

Section 8.15.          Obligations Absolute . All obligations of the Company hereunder shall be absolute and unconditional irrespective of:

(a)          any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Company;

(b)          any lack of validity or enforceability of the Promissory Note or any other Promissory Note Document, or any other agreement or instrument relating thereto;

(c)          any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Promissory Note or any other Promissory Note Document or any other agreement or instrument relating thereto;

(d)          any pledge, exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to any departure from any guarantee, for all or any of the Secured Obligations;

(e)          any exercise, non-exercise or waiver of any right, remedy, power or privilege under or in respect hereof, the Promissory Note or any other Promissory Note Document except as specifically set forth in a waiver granted pursuant to the provisions of Section 8.5 hereof; or

(f)          any other circumstances which might otherwise constitute a defense available to, or a discharge of, the Company.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first above written.

EXHIBIT 10.4

INTELLECTUAL PROPERTY SECURITY AGREEMENT

THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (together with all amendments, if any, from time to time, this “ Agreement ”), dated as of November 12, 2013, is made by Nephros, Inc., a Delaware corporation (“ Grantor ”), and Lambda Investors LLC (“ Lender ”).

WITNESSETH:

WHEREAS, Grantor has requested a $1,500,000 loan from Lender (the “ Loan ”); and

WHEREAS, Lender has agreed to make the Loan subject in part to Grantor entering into this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.           DEFINED TERMS . All capitalized terms used but not otherwise defined herein have the meanings given to them in the Security Agreement. All other terms contained in this Agreement, unless the context indicates otherwise, and not defined herein have the meanings provided for by the UCC to the extent the same are used or defined therein. In addition, as used herein, the following terms shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined):

“ Copyright License ” means copyright rights under any written agreement now owned or hereafter acquired by Grantor granting any rights with respect to any Copyright or Copyright registration.

“ Copyrights ” means all of the following now owned or hereafter adopted or acquired by Grantor: (a) all copyrights and General Intangibles of like nature (whether registered or unregistered), all registrations and recordings thereof; and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof, and (b) all reissues, extensions or renewals thereof.

“ License ” means any Copyright License, Patent License, Trademark License or other license of rights, entire interests, and partial interests now held or hereafter acquired by any Grantor.

“ Patent License ” means patent rights under any written agreement now owned or hereafter acquired by any Grantor granting any rights with respect to any invention on which a Patent is in existence.

“ Patents ” means all of the following in which Grantor now holds or hereafter acquires any interest: (a) all letters patent of the United States or of any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or of any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state, or any other country, and (b) all divisionals, reissues, continuations, continuations-in-part or extensions thereof.

“ Promissory Note ” means that certain Senior Secured Note, dated as of the date hereof, made by Grantor payable to the order of Lender in the original principal sum of $1,500,000, and any Senior Secured Note or Notes subsequently issued upon exchange or transfer thereof, and shall include all amendments, supplements and other modifications thereto.

“ Security Agreement ” means that certain Security Agreement, dated as of the date hereof, between Grantor and Lender, as the same may be amended from time to time.

“ Trademark License ” means trademark rights under any written agreement now owned or hereafter acquired by any Grantor granting any rights with respect to any Trademark.

“ Trademarks ” means all of the following now owned or hereafter existing or adopted or acquired by Grantor: (a) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or unregistered), all registrations and recordings thereof; and all pending applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof; (b) all reissues, extensions or renewals thereof; and (c) all goodwill associated with or symbolized by any of the foregoing.

2.           GRANT OF SECURITY INTEREST IN INTELLECTUAL PROPERTY COLLATERAL . To secure the prompt and complete payment, performance and observance of all the Secured Obligations, Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender a continuing security interest in and Lien upon all of its right, title and interest in, to and under the following, whether presently existing or hereafter created or acquired by or arising in favor of Grantor and whether owned or consigned by or to, or licensed from or to, Grantor (collectively, the “ Intellectual Property Collateral ”):

(i)          all of its Patents and Patent Licenses to which it is a party, including those referred to on Schedule I hereto;

(ii)         all of its Trademarks and Trademark Licenses to which it is a party, including those referred to on Schedule II hereto;

(iii)        all of its Copyrights and Copyright Licenses to which it is a party, including those referred to on Schedule III hereto;

(iv)        all divisionals, reissues, continuations or extensions, as may be appropriate, of the foregoing;

(v)         all goodwill of the business connected with the use of, and symbolized by, each Patent, each Patent License, each Trademark, each Trademark License, each Copyright and each Copyright License, as appropriate; and

(vi)        all products and Proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future (A) infringement of any Patent or Patent licensed under any Patent License, (B) injury to the goodwill associated with any Patent or any Patent licensed under any Patent License, (C) infringement or dilution of any Trademark or Trademark licensed under any Trademark License, (D) injury to the goodwill associated with any Trademark or any Trademark licensed under any Trademark License, (E) infringement of any Copyright or Copyright licensed under any Copyright License.

3.           REPRESENTATIONS AND WARRANTIES . Except for interests in Patents, Trademarks, and Copyrights that are, collectively, not material in value, Grantor represents and warrants that Grantor does not have any interest in, or title to, any Patent, Trademark or Copyright except as set forth in Schedule I , Schedule II and Schedule III , respectively, hereto. This Agreement is effective to create a valid and continuing Lien on and, upon the filing hereof with the United States Patent and Trademark Office and the United States Copyright Office and the filing of appropriate financing statements listed on Schedule I to the Security Agreement, perfected security interests in favor of Lender in all of Grantor’s Patents, Trademarks and Copyrights and such perfected security interests are enforceable as such as against any and all creditors of, and purchasers from, Grantor. Upon the filing by Lender of this Agreement with the United States Patent and Trademark Office and the United States Copyright Office and the filing of appropriate financing statements listed on Schedule I to the Security Agreement, all action necessary to protect and perfect Lender’s Lien on Grantor’s Patents, Trademarks and Copyrights shall have been duly taken.

4.           COVENANTS . Grantor covenants and agrees with Lender, for the benefit of Lender, that from and after the date of this Agreement and until this Agreement is terminated pursuant to Section 9 hereof:

(a)          Grantor shall notify Lender promptly, in writing, if it knows or has reason to know that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) may become abandoned or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding Grantor’s ownership of any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same in each case unless Grantor has elected as determined in its reasonable business judgment to abandon any application or registration which Grantor deems to be no longer material to the conduct of its business or operations.

(b)          If Grantor, either directly or through any agent, employee, licensee or designee, files an application for the registration of any Patent, Trademark or Copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency, Grantor shall give Lender written notice of such filed applications on or before the end of the Fiscal Quarter during which such application was made and Grantor shall execute and deliver a supplement hereto (in form of Exhibit B attached hereto) to evidence Lender’s Lien on such Patent, Trademark or Copyright, and the General Intangibles of Grantor relating thereto or represented thereby.

(c)          Grantor shall take all actions necessary to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of each of the Patents or Trademarks (now or hereafter existing), including the filing of renewals, Section 8 affidavits of use, Section 15 affidavits of non-contestability, opposition, interference and cancellation proceedings unless Grantor has elected, in its reasonable business judgment, to abandon any application or registration which Grantor deems in its reasonable business judgment to be no longer material to the conduct of its business or operations.

(d)          In the event that any of the material Intellectual Property Collateral is infringed upon, or misappropriated or diluted by a third party, Grantor shall notify Lender in writing reasonably promptly after Grantor learns thereof unless it shall reasonably determine that such Intellectual Property Collateral is in no way material to the conduct of its business or operations in its reasonable business judgment. Grantor shall, unless it shall reasonably determine that such Intellectual Property Collateral is in no way material to the conduct of its business or operations, promptly take such actions to enforce its rights and protect such Intellectual Property Collateral, whether by action, suit, proceeding or otherwise, as Grantor shall deem necessary or appropriate under the circumstances in its reasonable business judgment.

5.           SECURITY AGREEMENT . The security interests granted pursuant to this Agreement are granted in conjunction with the security interests granted to Lender pursuant to the Security Agreement. Grantor hereby acknowledges and affirms that the rights and remedies of Lender with respect to the security interest in the Intellectual Property Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.

6.           REINSTATEMENT . This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Grantor for liquidation or reorganization, should Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

7.           NOTICES . Whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon another any such communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be addressed to the party to be notified at the address set forth in the Promissory Note, and given in the manner required by the Promissory Note.

8.           ADDITIONAL GRANTORS . From time to time subsequent to the date hereof, additional Persons may become parties hereto as additional Grantors (each, an “ Additional Grantor ”), by executing a counterpart of this Agreement substantially in the form of Exhibit A attached hereto, and the written consent of Grantor, which consent shall not be unreasonably withheld. Upon delivery of any such counterpart to Lender, and written notice thereof to Grantor, each Additional Grantor shall be a Grantor and shall be as fully a party hereto as if such Additional Grantor were an original signatory hereto. Grantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Grantor hereunder nor by any election of Lender not to cause any Person to become an Additional Grantor hereunder. This Agreement shall be fully effective as to any Grantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Grantor hereunder.

9.           TERMINATION . Subject to Section 6 hereof, this Agreement and the security interests granted hereby shall terminate in accordance with the Security Agreement.

10.          ADVICE OF COUNSEL . Each of the parties represents to each other party hereto that it has discussed this Agreement with its counsel.

11.          GOVERNING LAW . THE INTERNAL LAW OF THE STATE OF DELAWARE SHALL GOVERN AND BE USED TO CONSTRUE AND ENFORCE THIS AGREEMENT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

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IN WITNESS WHEREOF, Grantor has caused this Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.

Signature Page ~ IP Security Agreement

Signature Page ~ IP Security Agreement

EXHIBIT A

COUNTERPART TO INTELLECTUAL

PROPERTY SECURITY AGREEMENT

This counterpart, dated __________ ___, 201_, is delivered pursuant to Section 8 of that certain Intellectual Property Security Agreement, dated as of November 12, 2013 (as from time to time amended, modified or supplemented, the “ Agreement ”; the terms defined therein and not otherwise defined herein being used as therein defined), between Nephros, Inc., a Delaware corporation, and Lambda Investors LLC. The undersigned hereby agrees (i)  this counterpart may be attached to the Agreement, (ii) that it is a Grantor under the Agreement and (iii) that it will comply with and be subject to, including representations and warranties, all the terms and conditions of the Agreement, including its schedules as supplemented hereby .

EXHIBIT B

SUPPLEMENT TO

INTELLECTUAL PROPERTY SECURITY AGREEMENT

This supplement, dated ____________ ___, 201_, is delivered pursuant to Section 4(b) of that certain Intellectual Property Security Agreement dated as of November 12, 2013 (as from time to time amended, modified or supplemented, the “ Agreement ”; the terms defined therein and not otherwise defined herein being used as therein defined), made by Nephros, Inc., a Delaware corporation, and Lambda Investors LLC. The undersigned hereby agrees that (i) this counterpart may be attached to the Agreement, (ii) that it is a Grantor under the Agreement and (iii) that it will comply with and be subject to, including representations and warranties, all the terms and conditions of the Agreement, including its schedules as supplemented hereby.

Schedules I , II , and III , of the Agreement are hereby supplemented with the information relating to the undersigned set forth as Schedules I , II , and III hereto, respectively. All references in the Agreement to such Schedules shall be deemed to refer to such Schedules, as supplemented hereby.