Exhibit
      10.2


    


    REGISTRATION
      RIGHTS AGREEMENT

    


    This
      Registration Rights Agreement (the “Agreement”) is made and entered into as of
      this 2nd
      day of
      March, 2006 by and among Arbios Systems, Inc., a Delaware corporation (the
      “Company”), and the “Investors” named in that certain Purchase Agreement by and
      among the Company and the Investors (the “Purchase Agreement”).

     

    The
      parties hereby agree as follows:

     

    1. Certain
      Definitions.

     

    As
      used
      in this Agreement, the following terms shall have the following
      meanings:

     

    “Affiliate”
means,
      with respect to any person, any other person which directly or indirectly
      controls, is controlled by, or is under common control with, such
      person.

     

    “Business
      Day”
means
      a
      day, other than a Saturday or Sunday, on which banks in New York City are open
      for the general transaction of business.

     

    “Common
      Stock”
shall
      mean the Company’s common stock, par value $0.001 per share, and any securities
      into which such shares may hereinafter be reclassified.

     

    “Investors”
shall
      mean the Investors identified in the Purchase Agreement and any Affiliate or
      permitted transferee of any Investor who is a subsequent holder of any Warrants
      or Registrable Securities.

     

    “Prospectus”
shall
      mean the prospectus included in any Registration Statement, as amended or
      supplemented by any 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.

     

    “Register,”
      “registered”
and
      “registration”
refer
      to a registration made by preparing and filing a Registration Statement or
      similar document in compliance with the 1933 Act (as defined below), and the
      declaration or ordering of effectiveness of such Registration Statement or
      document.

     

    “Registrable
      Securities”
shall
      mean the Shares and the shares of Common Stock issuable (i) upon the exercise
      of
      the Warrants, if any, and (ii) any other securities issued or issuable with
      respect to or in exchange for Registrable Securities; provided, that, a security
      shall cease to be a Registrable Security upon (A) sale pursuant to a
      Registration Statement or Rule 144 under the 1933 Act, or (B) such security
      becoming eligible for sale by the Investors pursuant to Rule
      144(k).

     

    “Registration
      Statement”
shall
      mean any registration statement of the Company filed under the 1933 Act that
      covers the resale of any of the Registrable Securities pursuant to the
      provisions of this Agreement, amendments and supplements to such Registration
      Statement, including post-effective amendments, all exhibits and all material
      incorporated by reference in such Registration Statement.

     

    “Required
      Investors”
means
      the Investors holding a majority of the Registrable Securities.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “SEC”
means
      the U.S. Securities and Exchange Commission.

     

    “Shares”
means
      the shares of Common Stock issued pursuant to the Purchase
      Agreement.

     

    “1933
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

    “1934
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

     

    “Warrants”
means,
      the warrants to purchase shares of Common Stock issued to the Investors pursuant
      to the Purchase Agreement, the form of which is attached to the Purchase
      Agreement as Exhibit A.

     

    “Warrant
      Shares”
means
      the shares of Common Stock issuable upon the exercise of the
      Warrants.

     

    2. Registration.

     

    (a)  Registration
      Statements.

     

    (i) No
      later
      than the sixtieth (60th)
      day
      immediately following the date of the closing (the “Closing Date”) of the
      purchase and sale of the securities contemplated by the Purchase Agreement
      (the
“Filing Deadline”), the Company shall prepare and file with the SEC one
      Registration Statement on Form SB-2 (or, if Form SB-2 is not then available
      to
      the Company, on such form of registration statement as is then available to
      effect a registration for resale of the Registrable Securities), covering the
      resale of the Registrable Securities in an amount at least equal to the number
      of Shares plus the Warrant Shares. Such Registration Statement shall include
      the
      plan of distribution attached hereto as Exhibit
      A.
      Such
      Registration Statement also shall cover, to the extent allowable under the
      1933
      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 efforts to obtain
      from each person who now has piggyback registration rights a waiver of those
      rights with respect to the Registration Statement. The Registration Statement
      (and each amendment or supplement thereto, and each request for acceleration
      of
      effectiveness thereof) shall be provided in accordance with Section 3(c) to
      the
      Investors and their counsel prior to its filing or other submission. Subject
      to
      the limitation set forth in Section 2(d), if a Registration Statement covering
      the Registrable Securities is not filed with the SEC on or prior to the Filing
      Deadline, the Company will make payment to each Investor, as liquidated damages
      and not as a penalty, in an amount equal to 1.5% of the aggregate purchase
      price
      paid by such Investor pursuant to the Purchase Agreement for each 30-day period
      or a pro rata payment for any portion thereof following the Filing Deadline
      for
      which no Registration Statement is filed with respect to the Registrable
      Securities. Such payments shall be in partial compensation to the Investors,
      and
      shall not constitute the Investors’ exclusive remedy for such events. Such
      payments shall be made to each Investor in cash. 

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    (ii) Additional
      Registrable Securities.
      Upon
      the written demand of any Investor and upon any change in the Warrant Price
      (as
      defined in the Warrant) such that additional shares of Common Stock become
      issuable upon the exercise of the Warrants, the Company shall prepare and file
      with the SEC one or more Registration Statements on Form SB-2 or amend the
      Registration Statement filed pursuant to clause (i) above, if such Registration
      Statement has not previously been declared effective (or, if Form SB-2 is not
      then available to the Company, on such form of registration statement as is
      then
      available to effect a registration for resale of such additional shares of
      Common Stock (the “Additional Shares”)) covering the resale of the Additional
      Shares, but only to the extent the Additional Shares are not at the time covered
      by an effective Registration Statement. Such Registration Statement also shall
      cover, to the extent allowable under the 1933 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 Additional Shares. The Company shall use its
      reasonable best efforts to obtain from each person who now has piggyback
      registration rights a waiver of those rights with respect to such Registration
      Statement. The Registration Statement (and each amendment or supplement thereto,
      and each request for acceleration of effectiveness thereof) shall be provided
      in
      accordance with Section 3(c) to the Investors and their counsel prior to its
      filing or other submission. Subject to the limitation set forth in Section
      2(d),
      if a Registration Statement covering the Additional Shares is required to be
      filed under this Section 2(a)(ii) and is not filed with the SEC promptly and,
      in
      any event within ten Business Days of the request of any Investor or the
      occurrence of a change in the Warrant Price as described above, the Company
      will
      make payment to each Investor, as liquidated damages and not as a penalty,
      in an
      amount equal to 1.5% of the aggregate purchase price paid by such Investor
      pursuant to the Purchase Agreement for each 30-day period or a pro rata payment
      for any portion thereof following the date by which such Registration Statement
      should have been filed for which no Registration Statement is filed with respect
      to the Additional Shares. Such payments shall be in partial compensation to
      the
      Investors, and shall not constitute the Investors’ exclusive remedy for such
      events. Such payments shall be made to each Investor in cash.

     

    (iii) Promptly
      following the date (the “Qualification Date”) upon which the Company becomes
      eligible to use a registration statement on Form S-3 to register the Registrable
      Securities or Additional Shares, as applicable, for resale, but in no event
      more
      than ten (10) Business Days after the Qualification Date (the “Qualification
      Deadline”), the Company shall file a registration statement on Form S-3 covering
      the Registrable Securities or Additional Shares, as applicable (or a
      post-effective amendment on Form S-3 to the registration statement on Form
      SB-2)
      (a “Shelf Registration Statement”) and shall use commercially reasonable efforts
      to cause such Shelf Registration Statement to be declared effective as promptly
      as practicable thereafter. Subject to the limitation set forth in Section 2(d),
      if a Shelf Registration Statement covering the Registrable Securities is not
      filed with the SEC on or prior to the Qualification Deadline, the Company will
      make payment to each Investor, as liquidated damages and not as a penalty,
      in an
      amount equal to 1.5% of the aggregate purchase price paid by such Investor
      pursuant to the Purchase Agreement for each 30-day period or a pro rata payment
      for any portion thereof following the date by which such Shelf Registration
      Statement should have been filed for which no such Shelf Registration Statement
      is filed with respect to the Registrable Securities or Additional Shares, as
      applicable. Such payments shall be in partial compensation to the Investors,
      and
      shall not constitute the Investors’ exclusive remedy for such events. Such
      payments shall be made to each Investor in cash.

    


    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    (b)  Expenses.
      The
      Company will pay all expenses associated with each registration, including
      filing and printing fees, the Company’s counsel and accounting fees and
      expenses, costs associated with clearing the Registrable Securities for sale
      under applicable state securities laws, listing fees, but excluding Investors’
legal and other expenses, discounts, commissions, fees of underwriters, selling
      brokers, dealer managers or similar securities industry professionals with
      respect to the Registrable Securities being sold.

     

    (c)  Effectiveness.

     

    (i) The
      Company shall use commercially reasonable efforts to have any Registration
      Statement filed pursuant to this Section 2 declared effective as soon as
      practicable. The Company shall notify the Investors by facsimile or e-mail
      as
      promptly as practicable, and in any event, within twenty-four (24) hours, after
      any Registration Statement is declared effective and shall simultaneously
      provide the Investors with copies of any related Prospectus to be used in
      connection with the sale or other disposition of the securities covered thereby.
      Subject to the limitation set forth in Section 2(d), if (A)(x) a Registration
      Statement covering the Registrable Securities is not declared effective by
      the
      SEC within ninety (90) days after the earlier of (i) the Filing Deadline and
      (ii) the date the Registration Statement is filed (120 days if the Registration
      Statement is subjected to a full review by the SEC), or (y) a Registration
      Statement covering Additional Shares is not declared effective by the SEC within
      ninety (90) days following the time such Registration Statement was required
      to
      be filed pursuant to Section 2(a)(ii) (120 days if the Registration Statement
      is
      subjected to a full review by the SEC) or (z) a Shelf Registration Statement
      is
      not declared effective by the SEC within 90 days after the Qualification
      Deadline (120 days if the Registration Statement is subjected to a full review
      by the SEC) or
      (B)
      after a Registration Statement has been declared effective by the SEC, sales
      cannot be made pursuant to such Registration Statement for any reason (including
      without limitation by reason of a stop order, or the Company’s failure to update
      the Registration Statement), but excluding the inability of any Investor to
      sell
      the Registrable Securities covered thereby due to market conditions and except
      as excused pursuant to subparagraph (ii) below, then
      the
      Company will make payment to each Investor, as liquidated damages and not as
      a
      penalty, in an amount equal to 1.5% of the aggregate purchase price paid by
      such
      Investor pursuant to the Purchase Agreement for each 30-day period or a pro
      rata
      payment for any portion thereof following the date by which such Registration
      Statement should have been effective (the “Blackout Period”). Such payments
      shall be in partial compensation to the Investors, and shall not constitute
      the
      Investors’ exclusive remedy for such events. The amounts payable as liquidated
      damages pursuant to this paragraph shall be paid monthly within three (3)
      Business Days of the last day of each month following the commencement of the
      Blackout Period until the termination of the Blackout Period. Such payments
      shall be made to each Investor in cash.

     

    (ii) For
      not
      more than twenty (20) consecutive days or for a total of not more than
      forty-five (45) days in any twelve (12) month period, the Company may delay
      the
      disclosure of material non-public information concerning the Company, by
      suspending the use of any Prospectus included in any registration contemplated
      by this Section containing such information, the disclosure of which at the
      time
      is not, in the good faith opinion of the Company, in the best interests of
      the
      Company (an “Allowed Delay”); provided, that the Company shall promptly (a)
      notify the Investors in writing of the existence of (but in no event, without
      the prior written consent of an Investor, shall the Company disclose to such
      Investor any of the facts or circumstances regarding) material non-public
      information giving rise to an Allowed Delay, (b) advise the Investors in writing
      to cease all sales under the Registration Statement until the end of the Allowed
      Delay and (c) use commercially reasonable efforts to terminate an Allowed Delay
      as promptly as practicable.

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    (d)  Limitation
      on Liquidated Damages.
      Notwithstanding the other provisions of this Section 2, in no event shall the
      Company be liable for liquidated damages in excess of 12% of the aggregate
      purchase price paid by the Investors pursuant to the Purchase
      Agreement.

     

    3. Company
      Obligations.
      The
      Company will use commercially reasonable efforts to effect the registration
      of
      the Registrable Securities in accordance with the terms hereof, and pursuant
      thereto the Company will, as expeditiously as possible:

     

    (a)  use
      commercially reasonable efforts to cause such Registration Statement to become
      effective and to remain continuously effective for a period that will terminate
      upon the earlier of (i) the date on which all Registrable Securities covered
      by
      such Registration Statement as amended from time to time, have been sold, and
      (ii) the date on which all Registrable Securities covered by such Registration
      Statement may be sold pursuant to Rule 144(k) (the “Effectiveness Period”) and
      advise the Investors in writing when the Effectiveness Period has
      expired;

     

    (b)  prepare
      and file with the SEC such amendments and post-effective amendments to the
      Registration Statement and the Prospectus as may be necessary to keep the
      Registration Statement effective for the period specified in Section 3(a) and
      to
      comply with the provisions of the 1933 Act and the 1934 Act with respect to
      the
      distribution of all of the Registrable Securities covered thereby;

     

    (c)  provide
      copies to and permit counsel designated by the Investors to review each
      Registration Statement and all amendments and supplements thereto no less than
      three (3) Business Days prior to their filing with the SEC and not file any
      document to which such counsel reasonably objects;

     

    (d)  furnish
      to the Investors and their legal counsel (i) promptly after the same is prepared
      and publicly distributed, filed with the SEC, or received by the Company (but
      not later than two (2) Business Days after the filing date, receipt date or
      sending date, as the case may be) one (1) copy of any Registration Statement
      and
      any amendment thereto, each preliminary prospectus and Prospectus and each
      amendment or supplement thereto, and each letter written by or on behalf of
      the
      Company to the SEC or the staff of the SEC, and each item of correspondence
      from
      the SEC or the staff of the SEC, in each case relating to such Registration
      Statement (other than any portion of any thereof which contains information
      for
      which the Company has sought confidential treatment), and (ii) such number
      of
      copies of a Prospectus, including a preliminary prospectus, and all amendments
      and supplements thereto and such other documents as each Investor may reasonably
      request in order to facilitate the disposition of the Registrable Securities
      owned by such Investor that are covered by the related Registration
      Statement;

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    (e)  use
      commercially reasonable efforts to (i) prevent the issuance of any stop order
      or
      other suspension of effectiveness and, (ii) if such order is issued, obtain
      the
      withdrawal of any such order at the earliest possible moment;

     

    (f)  prior
      to
      any public offering of Registrable Securities, use commercially reasonable
      efforts to register or qualify or cooperate with the Investors and their counsel
      in connection with the registration or qualification of such Registrable
      Securities for offer and sale under the securities or blue sky laws of such
      jurisdictions requested by the Investors and do any and all other commercially
      reasonable acts or things necessary or advisable to enable the distribution
      in
      such jurisdictions of the Registrable Securities covered by the Registration
      Statement;
      provided, however, that the Company shall not be required in connection
      therewith or as a condition thereto to (i) qualify to do business in any
      jurisdiction where it would not otherwise be required to qualify but for this
      Section 3(f), (ii) subject itself to general taxation in any jurisdiction where
      it would not otherwise be so subject but for this Section 3(f), or (iii) file
      a
      general consent to service of process in any such jurisdiction;

     

    (g)  use
      commercially reasonable efforts to cause all Registrable Securities covered
      by a
      Registration Statement to be listed on each securities exchange, interdealer
      quotation system or other market on which similar securities issued by the
      Company are then listed;

     

    (h)  immediately
      notify the Investors, at any time when a Prospectus relating to Registrable
      Securities is required to be delivered under the 1933 Act, upon discovery that,
      or upon the happening of any event as a result of which, the Prospectus included
      in a Registration Statement, as then in effect, includes an untrue statement
      of
      a material fact or omits to state any material fact required to be stated
      therein or necessary to make the statements therein not misleading in light
      of
      the circumstances then existing, and at the request of any such Investor,
      promptly prepare and furnish to such Investor a reasonable number of copies
      of a
      supplement to or an amendment of such Prospectus as may be necessary so that,
      as
      thereafter delivered to the purchasers of such Registrable Securities, such
      Prospectus shall not include 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 not misleading in light of the circumstances then existing;
      and

     

    (i)  otherwise
      use commercially reasonable efforts to comply with all applicable rules and
      regulations of the SEC under the 1933 Act and the 1934 Act, take such other
      actions as may be reasonably necessary to facilitate the registration of the
      Registrable Securities hereunder; and make available to its security holders,
      as
      soon as reasonably practicable, but not later than the Availability Date (as
      defined below), an earnings statement covering a period of at least twelve
      (12)
      months, beginning after the effective date of each Registration Statement,
      which
      earnings statement shall satisfy the provisions of Section 11(a) of the 1933
      Act, including Rule 158 promulgated thereunder (for the purpose of this
      subsection 3(i), “Availability Date” means the 45th day following the end of the
      fourth fiscal quarter that includes the effective date of such Registration
      Statement, except that, if such fourth fiscal quarter is the last quarter of
      the
      Company’s fiscal year, “Availability Date” means the 90th day after the end of
      such fourth fiscal quarter).

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    (j)  With
      a
      view to making available to the Investors the benefits of Rule 144 (or its
      successor rule) and any other rule or regulation of the SEC that may at any
      time
      permit the Investors to sell shares of Common Stock to the public without
      registration, the Company covenants and agrees to: (i) use
      commercially reasonable efforts to make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144, until the earlier of (A) six months after such date as all of the
      Registrable Securities may be resold pursuant to Rule 144(k) or any other rule
      of similar effect or (B) such date as all of the Registrable Securities shall
      have been resold; (ii) file with the SEC in a timely manner all reports and
      other documents required of the Company under the 1934 Act; and (iii) furnish
      to
      each Investor upon request, as long as such Investor owns any Registrable
      Securities, (A) a written statement by the Company that it has complied with
      the
      reporting requirements of the 1934 Act, (B) a copy of the Company’s most recent
      Annual Report on Form 10-KSB or Quarterly Report on Form 10-QSB, and (C) such
      other information as may be reasonably requested in order to avail such Investor
      of any rule or regulation of the SEC that permits the selling of any such
      Registrable Securities without registration.

    


    4. Due
      Diligence Review; Information.
      The
      Company shall make available, during normal business hours, for inspection
      and
      review by the Investors, advisors to and representatives of the Investors (who
      may or may not be affiliated with the Investors and who are reasonably
      acceptable to the Company), all financial and other records, all SEC Filings
      (as
      defined in the Purchase Agreement) and other filings with the SEC, and all
      other
      corporate documents and properties of the Company as may be reasonably necessary
      for the purpose of such review, and cause the Company’s officers, directors and
      employees, within a reasonable time period, to supply all such information
      reasonably requested by the Investors or any such representative, advisor or
      underwriter in connection with such Registration Statement (including, without
      limitation, in response to all questions and other inquiries reasonably made
      or
      submitted by any of them), prior to and from time to time after the filing
      and
      effectiveness of the Registration Statement for the sole purpose of enabling
      the
      Investors and such representatives, advisors and underwriters and their
      respective accountants and attorneys to conduct initial and ongoing due
      diligence with respect to the Company and the accuracy of such Registration
      Statement.

     

    The
      Company shall not disclose material nonpublic information to the Investors,
      or
      to advisors to or representatives of the Investors, unless prior to disclosure
      of such information the Company identifies such information as being material
      nonpublic information and provides the Investors, such advisors and
      representatives with the opportunity to accept or refuse to accept such material
      nonpublic information for review and any Investor wishing to obtain such
      information enters into an appropriate confidentiality agreement with the
      Company with respect thereto.

     

    5. Obligations
      of the Investors.

     

    (a)  Each
      Investor shall furnish in writing to the Company such information regarding
      itself, the Registrable Securities held by it and the intended method of
      disposition of the Registrable Securities held by it, as shall be reasonably
      required to effect the registration of such Registrable Securities and shall
      execute such documents in connection with such registration as the Company
      may
      reasonably request. At least five (5) Business Days prior to the first
      anticipated filing date of any Registration Statement, the Company shall notify
      each Investor of the information the Company requires from such Investor if
      such
      Investor elects to have any of the Registrable Securities included in the
      Registration Statement. An Investor shall provide such information to the
      Company at least two (2) Business Days prior to the first anticipated filing
      date of such Registration Statement if such Investor elects to have any of
      the
      Registrable Securities included in the Registration Statement.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    (b)  Each
      Investor, by its acceptance of the Registrable Securities agrees to cooperate
      with the Company as reasonably requested by the Company in connection with
      the
      preparation and filing of a Registration Statement hereunder, unless such
      Investor has notified the Company in writing of its election to exclude all
      of
      its Registrable Securities from such Registration Statement.

     

    (c)  Each
      Investor agrees that, upon receipt of any notice from the Company of either
      (i)
      the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the
      happening of an event pursuant to Section 3(h) hereof, such Investor will
      immediately discontinue disposition of Registrable Securities pursuant to the
      Registration Statement covering such Registrable Securities, until the
      Investor’s receipt of the copies of the supplemented or amended prospectus filed
      with the SEC and until any related post-effective amendment is declared
      effective and, if so directed by the Company, the Investor shall deliver to
      the
      Company (at the expense of the Company) or destroy (and deliver to the Company
      a
      certificate of destruction) all copies in the Investor’s possession of the
      Prospectus covering the Registrable Securities current at the time of receipt
      of
      such notice.

     

    6. Indemnification.

     

    (a)  Indemnification
      by the Company.
      The
      Company will indemnify and hold harmless each Investor and its officers,
      directors, members, employees and agents, successors and assigns, and each
      other
      person, if any, who controls such Investor within the meaning of the 1933 Act,
      against any losses, claims, damages or liabilities, joint or several, to which
      they may become subject under the 1933 Act or otherwise, insofar as such losses,
      claims, damages or liabilities (or actions in respect thereof) arise out of
      or
      are based upon: (i) any untrue statement or alleged untrue statement of any
      material fact contained in any Registration Statement, any preliminary
      prospectus or final prospectus contained therein, or any amendment or supplement
      thereof; (ii) any blue sky application or other document executed by the Company
      specifically for that purpose or based upon written information furnished by
      the
      Company filed in any state or other jurisdiction in order to qualify any or
      all
      of the Registrable Securities under the securities laws thereof (any such
      application, document or information herein called a “Blue Sky Application”);
      (iii) the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading;
      (iv) any violation by the Company or its agents of any rule or regulation
      promulgated under the 1933 Act applicable to the Company or its agents and
      relating to action or inaction required of the Company in connection with such
      registration; or (v) any failure to register or qualify the Registrable
      Securities included in any such Registration in any state where the Company
      or
      its agents has affirmatively undertaken or agreed in writing that the Company
      will undertake such registration or qualification on an Investor’s behalf and
      will reimburse such Investor, and each such officer, director or member and
      each
      such controlling person for any legal or other expenses reasonably incurred
      by
      them in connection with investigating or defending any such loss, claim, damage,
      liability or action; provided,
      however,
      that
      the Company will not be liable in any such case if and to the extent that any
      such loss, claim, damage or liability arises out of or is based upon an untrue
      statement or alleged untrue statement or omission or alleged omission so made
      in
      conformity with information furnished by such Investor or any such controlling
      person in writing specifically for use in such Registration Statement or
      Prospectus.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    (b)  Indemnification
      by the Investors.
      Each
      Investor agrees, severally but not jointly, to indemnify and hold harmless,
      to
      the fullest extent permitted by law, the Company, its directors, officers,
      employees, stockholders and each person who controls the Company (within the
      meaning of the 1933 Act) against any losses, claims, damages, liabilities and
      expense (including reasonable attorney fees) resulting from any untrue statement
      of a material fact or any omission of a material fact required to be stated
      in
      the Registration Statement or Prospectus or preliminary prospectus or amendment
      or supplement thereto or necessary to make the statements therein not
      misleading, to the extent, but only to the extent that such untrue statement
      or
      omission is contained in any information furnished in writing by such Investor
      to the Company specifically for inclusion in such Registration Statement or
      Prospectus or amendment or supplement thereto. In no event shall the liability
      of an Investor be greater in amount than the dollar amount of the net proceeds
      (net of all expense paid by such Investor in connection with any claim relating
      to this Section 6 and the amount of any damages such Investor has otherwise
      been
      required to pay by reason of such untrue statement or omission) received by
      such
      Investor upon the sale of the Registrable Securities included in the
      Registration Statement giving rise to such indemnification
      obligation.

     

    (c)  Conduct
      of Indemnification Proceedings.
      Any
      person entitled to indemnification hereunder shall (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 reasonably satisfactory to the indemnified party; provided
      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 person unless
      (a)
      the indemnifying party has agreed to pay such fees or expenses, or (b) the
      indemnifying party shall have failed to assume the defense of such claim and
      employ counsel reasonably satisfactory to such person or (c) in the reasonable
      judgment of any such person, based upon written advice of its counsel, a
      conflict of interest exists between such person and the indemnifying party
      with
      respect to such claims (in which case, if the 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); and
provided,
      further,
      that
      the failure of any indemnified party to give notice as provided herein shall
      not
      relieve the indemnifying party of its obligations hereunder, except to the
      extent that such failure to give notice shall materially adversely affect the
      indemnifying party in the defense of any such claim or litigation. It is
      understood that the indemnifying party shall not, in connection with any
      proceeding in the same jurisdiction, be liable for fees or expenses of more
      than
      one separate firm of attorneys at any time for all such indemnified parties.
      No
      indemnifying party will, except with the consent of the indemnified party,
      consent to entry of any judgment or enter into any settlement that does not
      include as an unconditional term thereof the giving by the claimant or plaintiff
      to such indemnified party of a release from all liability in respect of such
      claim or litigation.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    (d)  Contribution.
      If for
      any reason the indemnification provided for in the preceding paragraphs (a)
      and
      (b) is unavailable to an indemnified party or insufficient to hold it harmless,
      other than as expressly specified therein, then the indemnifying party shall
      contribute to the amount paid or payable by the indemnified party as a result
      of
      such loss, claim, damage or liability in such proportion as is appropriate
      to
      reflect the relative fault of the indemnified party and the indemnifying party,
      as well as any other relevant equitable considerations. No person guilty of
      fraudulent misrepresentation within the meaning of Section 11(f) of the 1933
      Act
      shall be entitled to contribution from any person not guilty of such fraudulent
      misrepresentation. In no event shall the contribution obligation of a holder
      of
      Registrable Securities be greater in amount than the dollar amount of the
      proceeds (net of all expenses paid by such holder in connection with any claim
      relating to this Section 6 and the amount of any damages such holder has
      otherwise been required to pay by reason of such untrue or alleged untrue
      statement or omission or alleged omission) received by it upon the sale of
      the
      Registrable Securities giving rise to such contribution obligation.

     

    7. Miscellaneous.

     

    (a)  Amendments
      and Waivers.
      This
      Agreement may be amended only by a writing signed by the Company and the
      Required Investors. The Company may take any action herein prohibited, or omit
      to perform any act herein required to be performed by it, only if the Company
      shall have obtained the written consent to such amendment, action or omission
      to
      act, of the Required Investors.

     

    (b)  Notices.
      All
      notices and other communications provided for or permitted hereunder shall
      be
      made as set forth in Section 9.4 of the Purchase Agreement.

     

    (c)  Assignments
      and Transfers by Investors.
      The
      provisions of this Agreement shall be binding upon and inure to the benefit
      of
      the Investors and their respective successors and assigns. An Investor may
      transfer or assign, in whole or from time to time in part, to one or more
      persons its rights hereunder in connection with the transfer of Registrable
      Securities by such Investor to such person, provided that such Investor complies
      with all laws applicable thereto and provides written notice of assignment
      to
      the Company promptly after such assignment is effected.

     

    (d)  Assignments
      and Transfers by the Company.
      This
      Agreement may not be assigned by the Company (whether by operation of law or
      otherwise) without the prior written consent of the Required Investors;
      provided, however, that the Company may assign its rights and delegate its
      duties hereunder to any surviving or successor corporation in connection with
      a
      merger or consolidation of the Company with another corporation, or a sale,
      transfer or other disposition of all or substantially all of the Company’s
      assets to another corporation, without the prior written consent of the Required
      Investors, after notice duly given by the Company to each Investor.

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    (e)  Benefits
      of the Agreement.
      The
      terms and conditions of this Agreement shall inure to the benefit of and be
      binding upon the respective permitted successors and assigns of the parties.
      Nothing in this Agreement, express or implied, is intended to confer upon any
      party other than the parties hereto or their respective successors and assigns
      any rights, remedies, obligations, or liabilities under or by reason of this
      Agreement, except as expressly provided in this Agreement.

     

    (f)  Counterparts;
      Faxes.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument. This Agreement may also be executed via facsimile, which shall
      be
      deemed an original.

     

    (g)  Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this
      Agreement.

     

    (h)  Severability.
      Any
      provision of this Agreement that 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 but shall be interpreted as if it were written so as to be
      enforceable to the maximum extent permitted by applicable law, and any such
      prohibition or unenforceability in any jurisdiction shall not invalidate or
      render unenforceable such provision in any other jurisdiction. To the extent
      permitted by applicable law, the parties hereby waive any provision of law
      which
      renders any provisions hereof prohibited or unenforceable in any
      respect.

     

    (i)  Further
      Assurances.
      The
      parties shall execute and deliver all such further instruments and documents
      and
      take all such other actions as may reasonably be required to carry out the
      transactions contemplated hereby and to evidence the fulfillment of the
      agreements herein contained.

     

    (j)  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 in respect of the subject matter contained
      herein. This Agreement supersedes all prior agreements and understandings
      between the parties with respect to such subject matter.

     

    (k)  Governing
      Law; Consent to Jurisdiction; Waiver of Jury Trial.
      This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of New York without regard to the choice of law principles
      thereof. Each of the parties hereto irrevocably submits to the exclusive
      jurisdiction of the courts of the State of New York located in New York County
      and the United States District Court for the Southern District of New York
      for
      the purpose of any suit, action, proceeding or judgment relating to or arising
      out of this Agreement and the transactions contemplated hereby. Service of
      process in connection with any such suit, action or proceeding may be served
      on
      each party hereto anywhere in the world by the same methods as are specified
      for
      the giving of notices under this Agreement. Each of the parties hereto
      irrevocably consents to the jurisdiction of any such court in any such suit,
      action or proceeding and to the laying of venue in such court. Each party hereto
      irrevocably waives any objection to the laying of venue of any such suit, action
      or proceeding brought in such courts and irrevocably waives any claim that
      any
      such suit, action or proceeding brought in any such court has been brought
      in an
      inconvenient forum. EACH
      OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
      LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
      CONSULTED SPECIFICALLY AS TO THIS WAIVER.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties have executed this Agreement or caused their duly
      authorized officers to execute this Agreement as of the date first above
      written.

     

    
      	 	 	 
	The
              Company: 	ARBIOS
              SYSTEMS,
              INC.
	 
 	 
 	 
 
	 	 	 
	 	
              
Walter
              C. Ogier
	 	President
              and
              Chief Executive Officer




    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	The
              Investors: 	 
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:

	 	Title:
              Authorized Person
	 	[other investors] 


    

        

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    


    Plan
      of Distribution

    


    The
      selling stockholders, which as used herein includes donees, pledgees,
      transferees or other successors-in-interest selling shares of common stock
      or
      interests in shares of common stock received after the date of this prospectus
      from a selling stockholder as a gift, pledge, partnership distribution or other
      transfer, may, from time to time, sell, transfer or otherwise dispose of any
      or
      all of their shares of common stock or interests in shares of common stock
      on
      any stock exchange, market or trading facility on which the shares are traded
      or
      in private transactions. These dispositions may be at fixed prices, at
      prevailing market prices at the time of sale, at prices related to the
      prevailing market price, at varying prices determined at the time of sale,
      or at
      negotiated prices.

    


    The
      selling stockholders may use any one or more of the following methods when
      disposing of shares or interests therein:

    


    -
      ordinary brokerage transactions and transactions in which the broker-dealer
      solicits purchasers;

    


    -
      block
      trades in which the broker-dealer will attempt to sell the shares as agent,
      but
      may position and resell a portion of the block as principal to facilitate the
      transaction;

    


    -
      purchases by a broker-dealer as principal and resale by the broker-dealer for
      its account;

    


    -
      an
      exchange distribution in accordance with the rules of the applicable
      exchange;

    


    -
      privately negotiated transactions;

    


    -
      short
      sales effected after the date the registration statement of which this
      Prospectus is a part is declared effective by the SEC;

    


    -
      through
      the writing or settlement of options or other hedging transactions, whether
      through an options exchange or otherwise;

    


    -
      broker-dealers may agree with the selling stockholders to sell a specified
      number of such shares at a stipulated price per share;

    


    -
      a
      combination of any such methods of sale; and

    


    -
      any
      other method permitted pursuant to applicable law.

    


    The
      selling stockholders may, from time to time, pledge or grant a security interest
      in some or all of the shares of common stock owned by them and, if they default
      in the performance of their secured obligations, the pledgees or secured parties
      may offer and sell the shares of common stock, from time to time, under this
      prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
      other applicable provision of the Securities Act amending the list of selling
      stockholders to include the pledgee, transferee or other successors in interest
      as selling stockholders under this prospectus. The selling stockholders also
      may
      transfer the shares of common stock in other circumstances, in which case the
      transferees, pledgees or other successors in interest will be the selling
      beneficial owners for purposes of this prospectus.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    In
      connection with the sale of our common stock or interests therein, the selling
      stockholders may enter into hedging transactions with broker-dealers or other
      financial institutions, which may in turn engage in short sales of the common
      stock in the course of hedging the positions they assume. The selling
      stockholders may also sell shares of our common stock short and deliver these
      securities to close out their short positions, or loan or pledge the common
      stock to broker-dealers that in turn may sell these securities. The selling
      stockholders may also enter into option or other transactions with
      broker-dealers or other financial institutions or the creation of one or more
      derivative securities which require the delivery to such broker-dealer or other
      financial institution of shares offered by this prospectus, which shares such
      broker-dealer or other financial institution may resell pursuant to this
      prospectus (as supplemented or amended to reflect such
      transaction).

    


    The
      aggregate proceeds to the selling stockholders from the sale of the common
      stock
      offered by them will be the purchase price of the common stock less discounts
      or
      commissions, if any. Each of the selling stockholders reserves the right to
      accept and, together with their agents from time to time, to reject, in whole
      or
      in part, any proposed purchase of common stock to be made directly or through
      agents. We will not receive any of the proceeds from this offering. Upon any
      exercise of the warrants by payment of cash, however, we will receive the
      exercise price of the warrants.

    


    The
      selling stockholders also may resell all or a portion of the shares in open
      market transactions in reliance upon Rule 144 under the Securities Act of 1933,
      provided that they meet the criteria and conform to the requirements of that
      rule.

    


    The
      selling stockholders and any underwriters, broker-dealers or agents that
      participate in the sale of the common stock or interests therein may be
      "underwriters" within the meaning of Section 2(11) of the Securities Act. Any
      discounts, commissions, concessions or profit they earn on any resale of the
      shares may be underwriting discounts and commissions under the Securities Act.
      Selling stockholders who are "underwriters" within the meaning of Section 2(11)
      of the Securities Act will be subject to the prospectus delivery requirements
      of
      the Securities Act.

    


    To
      the
      extent required, the shares of our common stock to be sold, the names of the
      selling stockholders, the respective purchase prices and public offering prices,
      the names of any agents, dealer or underwriter, any applicable commissions
      or
      discounts with respect to a particular offer will be set forth in an
      accompanying prospectus supplement or, if appropriate, a post-effective
      amendment to the registration statement that includes this
      prospectus.

    


    In
      order
      to comply with the securities laws of some states, if applicable, the common
      stock may be sold in these jurisdictions only through registered or licensed
      brokers or dealers. In addition, in some states the common stock may not be
      sold
      unless it has been registered or qualified for sale or an exemption from
      registration or qualification requirements is available and is complied
      with.

    


    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    We
      have
      advised the selling stockholders that the anti-manipulation rules of Regulation
      M under the Exchange Act may apply to sales of shares in the market and to
      the
      activities of the selling stockholders and their affiliates. In addition, we
      will make copies of this prospectus (as it may be supplemented or amended from
      time to time) available to the selling stockholders for the purpose of
      satisfying the prospectus delivery requirements of the Securities Act. The
      selling stockholders may indemnify any broker-dealer that participates in
      transactions involving the sale of the shares against certain liabilities,
      including liabilities arising under the Securities Act.

    


    We
      have
      agreed to indemnify the selling stockholders against liabilities, including
      liabilities under the Securities Act and state securities laws, relating to
      the
      registration of the shares offered by this prospectus.

    


    We
      have
      agreed with the selling stockholders to keep the registration statement of
      which
      this prospectus constitutes a part effective until the earlier of (1) such
      time
      as all of the shares covered by this prospectus have been disposed of pursuant
      to and in accordance with the registration statement or (2) the date on which
      the shares may be sold pursuant to Rule 144(k) of the Securities
      Act.

     

    
      
        
        

      

      -17-