Exhibit
      10.2

     

    Compensation
      Agreement

    


    The
      following sets forth the terms and conditions of a compensation agreement,
      effective as of October 1, 2008, to be entered into by Arbios Systems Inc.,
      a
      Delaware corporation (”Arbios”), and Shawn Cain, , (the “Consultant”).


    


    Statement
      of Work:

    


    The
      Consultant will during the Term (as hereinafter defined) market and make
      recommendations to the Board of Directors of Arbios for the sale, license and/or
      financing of SEPET and/or HepatAssist, and the intellectual property and
      equipment related thereto. The Term shall be from October 1, 2008 through and
      including December 31, 2008, unless earlier terminated by either the Consultant
      or Arbios upon thirty (30) days’ prior written notice to the other party. The
      following actions will be performed:

    


    
      	 	
              §

            	
              Identify
                and engage prospective purchasers, licensors and investors and negotiate
                closure of such transactions. 

            


    

    
      	 	
              §

            	
              Sell
                or dispose Arbios’ equipment and inventory to maximize
                proceeds.

            


    

    
      	 	
              §

            	
              Recommend
                appropriate legal actions to reasonably maintain Arbios’ intellectual
                property portfolio.

            


    

    
      	 	
              §

            	
              Work
                closely and provide reports to the Board of Directors of all such
                efforts.
                

            


    

    
      	 	
              §

            	
              Take
                such other actions as reasonably requested by the Arbios Board which
                are
                consistent with and for the purpose of implementing the transactions
                contemplated hereby.

            


    

    


    Proceeds:

    


    Proceeds
      is defined to mean all cash proceeds realized from the sale, licensure and/or
      financing of Arbios’ assets and collected from all purchasers and licensors
      identified by and with whom substantive discussions were carried on by the
      Consultant during the Term. At the end of the Term, the Consultant will provide
      a list of purchasers and licensors with whom substantive discussions were
      carried on by the Consultant.

    


    “Expenses”
      will not exceed $25,000 and will only include payments made for the following
      services:

    


    
      	 	
              §

            	
              Equipment
                auction

            


    

    
      	 	
              §

            	
              Travel

            


    

    
      	 	
              §

            	
              IT
                equipment consultant

            


    

    
      	 	
              §

            	
              Telephone
                & utilities

            


    

    
      	 	
              §

            	
              Expenses
                incidental to any asset sales, lease or
                license

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    the
      Consultant will use, at no charge to Arbios, his home office space to conduct
      business on Arbios’ behalf. Payment for the Expenses and any other reasonable
      and documented expenses are the responsibility of Arbios.

    


    Base
      Compensation: 

    


    Throughout
      the Term, the Consultant will receive $10,000 per month plus payment of medical
      insurance, estimated to be $1,500 per month.

    


    Payments
      will be made to the extent Arbios has sufficient liquidity on hand. The
      determination of liquidity shall be made from time to time by the Arbios Board
      of Directors. Any payments not made in a timely manner hereunder shall be made
      at such time as there is sufficient liquidity to make such payments as
      determined as provided for herein.

    


    Additional
      Incentive Commission Structure:

    


    Sale,
      licensure or financing of HepatAssist and related intellectual patent portfolio
      and equipment (“HepaAssist Assets”):

     

    If
      the
      sale of the HepatAssist Assets to HepaLife, as currently contemplated in the
      draft Letter of Intent attached hereto, is completed by October 10, 2008, the
      Consultant will receive a bonus of $20,000. If the aforementioned transaction
      is
      completed after October 10, 2008 but on or before October 31, 3008, then the
      Consultant will receive a $10,000 bonus.

    


    If
      the
      Consultant sells, licenses or finances the HepatAssist Assets through a third
      party(s) other then HepaLife, and the transaction closes prior to October 31,
      2008, the Consultant will receive a cash bonus equal to 10% of the Proceeds
      received by the Company at the closing of the transaction, with such amount
      not
      to exceed $50,000.

    If
      the
      Consultant sells, licenses or finances the HepatAssist Assets through a third
      party(s) other then HepaLife, and the transaction closes prior to November
      30,
      2008, the Consultant will receive a cash bonus equal to 5% of the Proceeds
      received by the Company at the closing of the transaction, with such amount
      not
      to exceed $50,000.

    


    Sale,
      licensure or financing of SEPET and related intellectual patent portfolio and
      equipment (“SEPET Assets”):

    


    If
      the
      Consultant sells, licenses or finances the SEPET Assets and the transaction
      closes prior to December 31, 2008, the Consultant will receive a cash bonus
      to
      be awarded in the sole discretion of the Board after taking into account the
      timing, size and structure of the transaction. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    Miscellaneous:

    


    
      	 	
              §

            	
              If
                any term or other provision of this term sheet is invalid, illegal
                or
                incapable of being enforced by virtue of any law, or public policy,
                all
                other conditions and provisions of this term sheet shall nevertheless
                remain in full force and effect so long as the economic or legal
                substance
                of the transactions contemplated hereby is not affected in any manner
                adverse to any party. Upon such determination that any term or other
                provision is invalid, illegal or incapable of being enforced, the
                parties
                hereto shall negotiate in good faith to modify this term sheet so
                as to
                effect the original intent of the parties as closely as possible
                in an
                acceptable manner to the end that the transactions contemplated hereby
                are
                fulfilled to the maximum extent
                possible

            


    

     

    Witness
      whereof, the parties have executed this Compensation Agreement on the date
      below

    


    
      	
              Dated:

            	Arbios
              Systems, Inc.,
	 	 	 
	 	 	 
	 	By:  	
              /s/
                THOMAS
                TULLY                                        

            
	 	 	
              Thomas
                Tully

            
	 	 	
              Compensation
                Committee Chairman

            


    

    


    Shawn
      Cain

    


    By:
      /s/
      SHAWN CAIN