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EXHIBIT 10.1

HEPALIFE TECHNOLOGIES, INC.

Suite 216 – 1628 West 1st Avenue

Vancouver, BC, V6J 1G1

   August 1, 2006 

Frank Menzler

64 Gregory Street

Marblehead, MA 01945

Re: Employment Agreement

Dear Frank: 

This letter sets forth the terms and conditions of your employment by the HepaLife Technologies, Inc. (the “Company"). 

1. Position and Duties. 

You shall be employed by the Company as its President and Chief Executive Officer; in performance of your duties, you shall be subject to the direction of, and be reporting directly to, the Company's Board of Directors (the "Board"); provided that, if requested by the Board, you will immediately resign as an officer of the Company. You shall be available to travel as the needs of the business require. You agree to exclusively devote your full business time, energy and skill to the duties assigned to you by the Board. 

2. At-Will Employment. 

Until such time that you receive a valid Green Card authorization in the United States, this employment agreement may be terminated by either party ‘at-will” - with or without cause - by providing 90 days advance notice to the end of a calendar quarter. Upon receipt of a valid Green Card authorization, anything herein to the contrary notwithstanding, your employment with and by the Company is “at-will employment” and may be terminated by you or the Company at any time, with or without cause, and for any reason whatsoever, upon written notice to the other. 

3. Compensation. 

You shall be compensated by the Company for your services as follows: 

 

(a) Salary: Commencing October 1, 2006, you shall be paid a monthly salary of $18,750.00 ($225,000.00 per year), subject to applicable tax withholding, payable in 24 installments on the 15th and last day of each calendar month during the term of this Agreement. Such salary shall be subject to 

periodic review and adjustment in accordance with the Company's salary review policies and practices then in effect for its senior management. 

(b) Stock Options: Upon commencement of employment on October 1, 2006, you and the Company will enter into a Stock Option Agreement (the “Stock Option Agreement”), pursuant to which you shall receive a total of 2,250,000 options (the “Options”) to purchase up to an aggregate of 2,250,000 shares of the Company’s common stock; the Options, which will be priced on the close of business on the 29th day of September, will be  subject to and shall have such restrictions, vesting requirements and exercise provisions as are set forth in the Stock Option Agreement, the terms and conditions of which will be consistent with  those contained in a General Offer of Employment dated June 1, 2006. The granting of the Options shall be effective only upon delivery of a fully executed Stock Option Agreement.

(c) Additional Benefits: You shall be entitled to four weeks of paid vacation annually. Nothing contained herein shall preclude you from participating in the present or future employee benefit plans of the Company for its senior executive staff, provided that you meet the eligibility requirements for participation in any such plans.

 

4. Expenses.

(a) Initial Expense Reimbursement: You shall receive a one time payment of $35,000.00 to reimburse you for certain expenses incurred by you in connection with your acceptance of employment hereunder (the “Initial Expense Reimbursement”) to relocate. Should the company terminate your employment without cause during your tenure, the company will reimburse you for reasonable relocation expenses (not to exceed $35,000) upon presentation of invoices. The Company’s commitment to reimburse your relocation expenses upon termination without cause shall expire as soon as you receive your Green Card. Should your employment be terminated by yourself or by the Company for cause, within twelve (12) months of the date of this Agreement, the Initial Expense Reimbursement shall become due and payable on a pro-rated monthly basis to the Company within 5 calendar days of the termination date. This Paragraph 4(a) shall survive the termination of this Agreement. 

(b) Medical Expense/Life Insurance: During the term of this Agreement, the Company agrees to pay your current monthly COBRA insurance premiums (“COBRA premiums”) of up to $2,000.00 per month until such time that the Company can make available an alternative medical insurance plan. You are also entitled to term life insurance and travel insurance, not to exceed total premium payments of $1,000.00 per year.

(c) US VISA/Work authorization: The Company will assist you in obtaining the necessary Visa/Work Authorization for you and your family, followed immediately by an application for a US Green Card, on the assumption, and agreement by you, that you meet all necessary criteria for obtaining a Green Card. Any legal cost associated with obtaining a Green Card will be paid by the Company.

(d) Other Expenses: You shall be entitled to reimbursement for reasonable travel and other out-of-pocket expenses necessarily incurred in the performance of your duties hereunder, upon submission and approval of written statements and bills in accordance with the then regular procedures of the Company.  

5.  Your Representations and Warranties:  You represent and warrant to the Company that (a) you are under no contractual or other restriction or obligation which is inconsistent with the execution of this Agree­ment, the performance of your duties hereunder, or the other rights of the Company hereunder, and (b) you are under no physical or mental disability that would hinder your performance of duties under this Agreement.

6. Termination of Salary, Benefits and Options: In the event of the termination of your employment by the Company or by you under Paragraph 2, then as of the date of the termination of your employment as set forth in either the Company’s notice to you or your notice to the Company, as the case may be (i), you shall no longer be entitled to any compensation under Paragraph 3 hereof, (ii) you shall no longer be entitled to any reimbursement of expenses under Paragraph 4 hereof, except for expenses incurred by you and approved by the Company prior to the date of such termination, (iii) any and all unexercised Options shall expire and shall no longer be exercisable as of the date of termination of this Agreement, and (iv) neither party hereto shall have any further rights or obligations hereunder (except obligations expressly stated to survive the termination of this Agreement). Nothing shall limit your right to be indemnified by the Company, subject to its indemnification policies then in effect, for your actions as a director or officer of the Company, provided such indemnification would otherwise have been available to you. 

7. Non Competition; Non Solicitation:  (a)

In view of the unique and valuable services it is expected that you will render to the Company, your knowledge of its trade secrets, and other proprietary information relating to the business of the Company and in consideration of the compensation to be received hereunder, you will not, during the period you are employed by the Company, engage in, or otherwise directly or indirectly, be employed by, or act as a consultant or lender to, or, without the prior written approval of the Board, be a director, officer, owner, or partner of, any other business or organization that is engaged in the same field of research and development as is the Company. Nothing herein shall be deemed to preclude you from being an officer, director, owner, investor in, or partner of, any business or organization which is not competing with the Company, provided the same does not in any manner whatsoever impair your ability to perform your duties under this Agreement.

(b) During your employment and for a period of one year following the termination of your employment, you will not directly or indirectly reveal the name of, solicit or interfere with, or endeavor to entice away from the Company any of its suppliers, customers, or employees.

(c) During your employment and for a period of one year following the termination of your employment, you shall not make any critical or disparaging statements about the Company or any of its employees, directors or products to any other person or entity.

(d) Since a breach of the provisions of this Paragraph 7 could not adequately be compensated by money damages, the Company shall be entitled, in addition to any other right and remedy available to it, to an injunction restraining such breach or a threatened breach, and in either case no bond or other security shall be required in connection therewith, and you hereby consent to the issuance of such injunction. You agree that the provi­sions of this Paragraph 7 are necessary and reasonable to protect the Company in the conduct of its business.  If any restriction contained in this Paragraph 7 shall be deemed to be invalid, illegal, or unenforceable by reason of the extent, duration, or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope, or other provisions hereof, and in its reduced 

form such restriction shall then be enforceable in the manner contemplated hereby. This Paragraph 7 shall survive the termination of this Agreement.

8. Intellectual Property: Any interest in patents, patent applications, inventions, copyrights, developments, and processes (“Intellectual Property”) which you now, or hereafter during the period you are employed by the Company, may own or develop relating to the fields in which the Company may then be engaged shall belong to the Company; and forthwith upon request of the Company, you shall execute all such assignments and other documents and take all such other action as the Company may reasonably request in order to vest in the Company all your right, title, and interest in and to such Intellectual Property free and clear of all liens, charges, and encumbrances. This Paragraph 8 shall survive the termination of this Agreement.

9. Confidential Information: All confidential information which you may now possess, or may obtain or create prior to the end of the period you are employed by the Company, relating to the business of the Company, or any customer or supplier of the Company, or any agreements, arrangements, or understandings to which the Company is a party, shall not be disclosed or made accessible by you to any other person or entity either during or after the termination of your employment or used by you except during your employment by the Company in the business and for the benefit of the Company.  You shall return all tangible evidence of such confidential information to the Company prior to or at the termination of your employment. This Paragraph 9 shall survive the termination of this Agreement.

10. Successors and Assigns: This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. In view of the personal nature of the services to be performed under this Agreement by you, you shall not have the right to assign or transfer any of your rights, obligations or benefits under this Agreement, except as otherwise noted herein.

11. No Reliance on Representations: You acknowledge that you are not relying, and have not relied, on any promise, representation or statement made by or on behalf of the Company which is not set forth in this Agreement. 

12. Entire Agreements; Amendments: This Agreement sets forth our entire understanding of the parties with respect to your employment by the Company, supersedes all existing agreements between you and the Company concerning such employment, and may be modified only by a written instrument duly executed by each of you and Company. 

13.  Waiver: Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.  Any waiver must be in writing.

14. Construction: You and the Company have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by you and the Company and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires 

otherwise. The word “including” shall mean including without limitation. The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement.

15.  Severability: Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

16. Notices: All notices, demands or requests made pursuant to, under or by virtue of this Agreement must be in writing and sent to the party to which the notice, demand or request is being made by (i) certified or registered mail, return receipt requested, (ii) nationally recognized overnight courier delivery, (iii) by facsimile transmission provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party or (iv) hand delivery as follows:

To the Company:

 

HepaLife Technologies, Inc.

Suite 216 – 1628 West 1st Avenue

Vancouver, BC, V6J 1G1

Fax:

604-659-5029

Attention: 

Mr. Harmel S. Rayat, 

President and Chief Executive Officer

To you:

64 Gregory Street

Marblehead, MA 01945

or to such other address, facsimile number, or email address, as is specified by a party by notice to the other party given in accordance with the provisions of this Paragraph 16. Any notice given in accordance with the provisions of this Paragraph 16 shall be deemed given (i) three (3) Business Days after mailing (if sent by certified mail), (ii) one (1) Business Day after deposit of same with a nationally recognized overnight courier service (if delivered by nationally recognized overnight courier service), or (iii) on the date delivery is made if delivered by hand or facsimile.  

17. Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 

18. Governing Law.  All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, County of New York for the adjudication of any dispute hereunder or in connection herewith or therewith, or with any transaction 

contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

19. Date of Agreement.  The date of this Agreement shall be August 1, 2006 regardless of the date it is signed by you. 

If you find the foregoing acceptable, please acknowledge your acceptance of, and agreement with, the terms and conditions set forth above by signing the enclosed copy of this letter in the space provided and returning the same to the undersigned. 

Sincerely, 

HepaLife Technologies, Inc.  

/s/ Harmel S. Rayat

Harmel S. Rayat

President and Chief Executive Officer

On this 1st day of August, 2006, I agree to and accept employment with HepaLife Technologies, Inc. on the terms and conditions set forth in this Agreement. 

Dated: August 1, 2006

/s/ Frank Menzler

Frank MenzlerConverted by EDGARwiz

EXHIBIT 10.2

HEPALIFE TECHNOLOGIES, INC.

NONSTATUTORY STOCK OPTION AGREEMENT

THIS NONSTATUTORY STOCK OPTION AGREEMENT (“Agreement”) is made and entered into as of the date set forth below, by and between HepaLife Technologies, Inc., a Florida corporation (the “Company”), and the following employee of the Company (“Optionee”):

In consideration of the covenants herein set forth, the parties hereto agree as follows:

1. 

Option Information.

(a)  

Date of Option:

October 1, 2006

(b)  

Optionee:

Frank Menzler

(c)  

Number of Shares: 

2,250,000

(d)  

Exercise Price: 

$0.73

2.  

Acknowledgements.

(a)  

Optionee is an employee of the Company.

(b)  

The Board of Directors (the “Board” which term shall include an authorized committee of the Board of Directors) and shareholders of the Company have heretofore adopted a 2001 Incentive Stock Plan (the “Plan”), pursuant to which this Option is being granted; and

(c)  

The Board has authorized the granting to Optionee of a nonstatutory stock option (“Option”) to purchase shares of common stock of the Company (“Stock”) upon the terms and conditions hereinafter stated and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”) provided by Rule 701 thereunder.

3.  

Shares; Price.  

Company hereby grants to Optionee the right to purchase, upon and subject to the terms and conditions herein stated, the number of shares of Stock set forth in Section 1(c) above (the “Shares”) for cash (or other consideration as is authorized under the Plan and acceptable to the Board of Directors of the Company, in their sole and absolute discretion) at the price per Share set forth in Section 1(d) above (the “Exercise Price”), such price being not less than [e.g., 85%] of the fair market value per share of the Shares covered by this Option as of the date hereof.

4.

Term of Option; Continuation of Service.  This Option shall expire, and all rights hereunder to purchase the Shares shall terminate 10 years from the date hereof. This Option shall earlier terminate subject to Sections 7 hereof upon, and as of the date of, the termination of Optionee’s employment if such termination occurs prior to the end of such 10 year period. Following the termination of the Optionee’s employment, if the Optionee continues to serve as a director of the Company, this Option shall nevertheless be terminated as of the date of the termination of  the Optionee’s employment. Nothing contained herein shall confer upon Optionee the right to the continuation of his or her employment by the Company or to interfere with the right of the Company to terminate such employment or to increase or decrease the compensation of Optionee from the rate in existence at the date hereof.

5.

Vesting of Option.  Subject to the provisions of Sections 7 hereof, this Option shall vest and become exercisable during the term of Optionee’s employment as follows: 

(i) 1,750,000 options shall vest if and when HepaLife or a wholly owned subsidiary, or any one current or future medical technology, approved by the Board of Directors is acquired, in whole or in part, or when either HepaLife or a subsidiary, enters into a strategic collaborative agreement for any one current or future medical technology, approved by the Board of Directors, provided that the Company’s Board of Directors has approved, by written resolution, any such acquisition, sale or agreement;

(ii) 250,000 stock options shall vest upon the filing of human safety trials for HepaLife’s artificial liver device (or such other Board approved medical technology) in Europe or the equivalent filing in the US; and 

(iii) 250,000 stock options shall vest upon the successful completion of human safety trials for HepaLife’s artificial liver device (or such other Board approved medical technology) in Europe or the equivalent safety trial approval in the US (completion of phase 1).

The installments shall be cumulative (i.e., this option may be exercised, as to any or all shares covered by an installment, at any time or times after an installment becomes exercisable and until expiration or termination of this option).

6.

Exercise.  This Option shall be exercised by delivery to the Company of (a) written notice of exercise stating the number of Shares being purchased (in whole shares only) and such other information set forth on the form of Notice of Exercise attached hereto as Appendix A, (b) a check or cash in the amount of the Exercise Price of the Shares covered by the notice (or such other consideration as has been approved by the Board of Directors consistent with the Plan) and (c) a written investment representation as provided for in Section 12 hereof. This Option shall not be assignable or transferable, except by will or by the laws of descent and distribution, and shall be exercisable only by Optionee during his or her lifetime. 

7.

Termination of Employment.  If Optionee shall cease to be employed by the Company for any reason whatsoever, whether voluntarily or involuntarily, Optionee, this Option shall terminate as of the date of the termination of such employment and shall be null and void. No options, including those previously vested but not exercised, may be exercised after the date of Optionee’s termination of employment with or by the Company

Unless earlier terminated, all rights under this Option shall terminate in any event on the expiration date of this Option as defined in Section 4 hereof.

8.

No Rights as Shareholder.  Optionee shall have no rights as a shareholder with respect to the Shares covered by any installment of this Option until the effective date of issuance of the Shares following exercise of this Option, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate or certificates are issued except as provided in Section 9 hereof.

9.

Recapitalization.  Subject to any required action by the shareholders of the Company, the number of Shares covered by this Option, and the Exercise Price thereof, shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company; provided however that the conversion of any convertible securities of the Company shall not be deemed having been “effected without receipt of consideration by the Company”.

In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets or capital stock of the Company (collectively, a “Reorganization”), unless otherwise provided by the Board, this Option shall terminate immediately prior to such date as is determined by the Board, which date shall be no later than the consummation of such Reorganization. In such event, if the entity which shall be the surviving entity does not tender to Optionee an offer, for which it has no obligation to do so, to substitute for any unexercised Option a stock option or capital stock of such surviving of such surviving entity, as applicable, which on an equitable basis shall provide the Optionee with substantially the same economic benefit as such unexercised Option, then the Board may grant to such Optionee, in its sole and absolute discretion and without obligation, the right for a period commencing thirty (30) days prior to and ending immediately prior to the date determined by the Board pursuant hereto for termination of the Option or during the remaining term of the Option, whichever is the lesser, to exercise any unexpired Option or 

Options without regard to the installment provisions of Section 5; provided, however, that such exercise shall be subject to the consummation of such Reorganization.

Subject to any required action by the shareholders of the Company, if the Company shall be the surviving entity in any merger or consolidation, this Option thereafter shall pertain to and apply to the securities to which a holder of Shares equal to the Shares subject to this Option would have been entitled by reason of such merger or consolidation, and the installment provisions of Section 5 shall continue to apply.

In the event of a change in the shares of the Company as presently constituted, which is limited to a change of all of its authorized Stock without par value into the same number of shares of Stock with a par value, the shares resulting from any such change shall be deemed to be the Shares within the meaning of this Option.

To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided, Optionee shall have no rights by reason of any subdivision or consolidation of shares of Stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number and price of Shares subject to this Option shall not be affected by, and no adjustments shall be made by reason of, any dissolution, liquidation, merger, consolidation or sale of assets or capital stock, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.

The grant of this Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve or liquidate or to sell or transfer all or any part of its business or assets.

10.

Taxation upon Exercise of Option.  Optionee understands that, upon exercise of this Option, Optionee will recognize income, for Federal and state income tax purposes, in an amount equal to the amount by which the fair market value of the Shares, determined as of the date of exercise, exceeds the Exercise Price. The acceptance of the Shares by Optionee shall constitute an agreement by Optionee to report such income in accordance with then applicable law and to cooperate with Company in establishing the amount of such income and corresponding deduction to the Company for its income tax purposes. Withholding for federal or state income and employment tax purposes will be made, if and as required by law, from Optionee’s then current compensation, or, if such current compensation is insufficient to satisfy withholding tax liability, the Company may require Optionee to make a cash payment to cover such liability as a condition of the exercise of this Option.

11.

Modification, Extension and Renewal of Options.  The Board or Committee, as described in the Plan, may modify, extend or renew this Option or accept the surrender thereof (to the extent not theretofore exercised) and authorize the granting of a new option in substitution therefore (to the extent not theretofore exercised), subject at all times to the Plan, the Code and the corporate securities rules of Florida. Notwithstanding the foregoing provisions of this Section 11, no modification shall, without the consent of the Optionee, alter to the Optionee’s detriment or impair any rights of Optionee hereunder.

12.

Investment Intent; Restrictions on Transfer.

(a)  

Optionee represents and agrees that if Optionee exercises this Option in whole or in part, Optionee will in each case acquire the Shares upon such exercise for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that upon such exercise of this Option in whole or in part, Optionee shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. If the Shares represented by this Option are registered under the Securities Act, either before or after the exercise of this Option in whole or in part, the Optionee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.

(b)  

Optionee further represents that Optionee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition, and to obtain additional information reasonably necessary to verify the accuracy of such information

(c)  

Unless and until the Shares represented by this Option are registered under the Securities Act, all certificates representing the Shares and any certificates subsequently issued in substitution therefor and any certificate for any securities issued pursuant to any stock split, share reclassification, stock dividend or other similar capital event shall bear legends in substantially the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE ‘SECURITIES ACT’) OR UNDER THE APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO EXEMPTIONS THEREFROM.

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO THAT CERTAIN NONSTATUTORY STOCK OPTION AGREEMENT DATED OCTOBER 1, 2006, BETWEEN THE COMPANY AND THE ISSUEE WHICH RESTRICTS THE TRANSFER OF THESE SHARES WHICH ARE SUBJECT TO REPURCHASE BY THE COMPANY UNDER CERTAIN CONDITIONS.

and/or such other legend or legends as the Company and its counsel deem necessary or appropriate. Appropriate stop transfer instructions with respect to the Shares have been placed with the Company’s transfer agent.

13.

Stand-off Agreement.  Optionee agrees that, in connection with any registration of the Company’s securities under the Securities Act, and upon the request of the Company or any underwriter managing an underwritten offering of the Company’s securities, Optionee shall not sell, short any sale of, loan, grant an option for, or otherwise dispose of any of the Shares (other than Shares included in the offering) without the prior written consent of the Company or such managing underwriter, as applicable, for a period of at least one year following the effective date of registration of such offering.

14.

 Restriction Upon Transfer.  The Shares may not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated by the Optionee except as hereinafter provided.

(a)

Repurchase Right on Termination Other Than for Cause. For the purposes of this Section, a “Repurchase Event” shall mean an occurrence of one of (i) termination of Optionee’s employment by the Company, voluntary or involuntary and with or without cause; (ii) retirement or death of Optionee; (iii) bankruptcy of Optionee, which shall be deemed to have occurred as of the date on which a voluntary or involuntary petition in bankruptcy is filed with a court of competent jurisdiction; (iv) dissolution of the marriage of Optionee, to the extent that any of the Shares are allocated as the sole and separate property of Optionee’s spouse pursuant thereto (in which case, this Section shall only apply to the Shares so affected); or (v) any attempted transfer by the Optionee of Shares, or any interest therein, in violation of this Agreement. Upon the occurrence of a Repurchase Event, the Company shall have the right (but not an obligation) to repurchase all or any portion of the Shares of Optionee at a price equal to the fair value of the Shares as of the date of the Repurchase Event.

(b)

Repurchase Right on Termination for Cause. In the event Optionee’s employment is terminated by the Company “for cause”, then the Company shall have the right (but not an obligation) to repurchase Shares of Optionee at a price equal to the Exercise Price. Such right of the Company to 

repurchase Shares shall apply to 100% of the Shares for one (1) year from the date of this Agreement; and shall thereafter lapse at the rate of twenty percent (20%) of the Shares on each anniversary of the date of this Agreement. In addition, the Company shall have the right, in the sole discretion of the Board and without obligation, to repurchase upon termination for cause all or any portion of the Shares of Optionee, at a price equal to the fair value of the Shares as of the date of termination, which right is not subject to the foregoing lapsing of rights. In the event the Company elects to repurchase the Shares, the stock certificates representing the same shall forthwith be returned to the Company for cancellation.

(c)

Exercise of Repurchase Right. Any Repurchase Right under Paragraphs 14(a) or 14(b) shall be exercised by giving notice of exercise as provided herein to Optionee or the estate of Optionee, as applicable. Such right shall be exercised, and the repurchase price thereunder shall be paid, by the Company within a ninety (90) day period beginning on the date of notice to the Company of the occurrence of such Repurchase Event (except in the case of termination of employment or retirement, where such option period shall begin upon the occurrence of the Repurchase Event). Such repurchase price shall be payable only in the form of cash (including a check drafted on immediately available funds) or cancellation of purchase money indebtedness of the Optionee for the Shares. If the Company can not purchase all such Shares because it is unable to meet the financial tests set forth in the Florida corporation law, the Company shall have the right to purchase as many Shares as it is permitted to purchase under such sections. Any Shares not purchased by the Company hereunder shall no longer be subject to the provisions of this Section 14.

(d)  

Right of First Refusal. In the event Optionee desires to transfer any Shares during his or her lifetime, Optionee shall first offer to sell such Shares to the Company. Optionee shall deliver to the Company written notice of the intended sale, such notice to specify the number of Shares to be sold, the proposed purchase price and terms of payment, and grant the Company an option for a period of thirty days following receipt of such notice to purchase the offered Shares upon the same terms and conditions. To exercise such option, the Company shall give notice of that fact to Optionee within the thirty (30) day notice period and agree to pay the purchase price in the manner provided in the notice. If the Company does not purchase all of the Shares so offered during foregoing option period, Optionee shall be under no obligation to sell any of the offered Shares to the Company, but may dispose of such Shares in any lawful manner during a period of one hundred and eighty (180) days following the end of such notice period, except that Optionee shall not sell any such Shares to any other person at a lower price or upon more favorable terms than those offered to the Company.

(e)

Acceptance of Restrictions. Acceptance of the Shares shall constitute the Optionee’s agreement to such restrictions and the legending of his certificates with respect thereto. Notwithstanding such restrictions, however, so long as the Optionee is the holder of the Shares, or any portion thereof, he shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a shareholder with respect thereto.

(f)  

Permitted Transfers. Notwithstanding any provisions in this Section 14 to the contrary, the Optionee may transfer Shares subject to this Agreement to his or her parents, spouse, children, or grandchildren, or a trust for the benefit of the Optionee or any such transferee(s); provided, that such permitted transferee(s) shall hold the Shares subject to all the provisions of this Agreement (all references to the Optionee herein shall in such cases refer mutatis mutandis to the permitted transferee, except in the case of clause (iv) of Section 14(a) wherein the permitted transfer shall be deemed to be rescinded); and provided further, that notwithstanding any other provisions in this Agreement, a permitted transferee may not, in turn, make permitted transfers without the written consent of the Optionee and the Company.

(g)  

Release of Restrictions on Shares. All other restrictions under this Section 14 shall terminate five (5) years following the date of this Agreement, or when the Company’s securities are publicly traded, whichever occurs earlier.

15.  

Notices.  Any notice required to be given pursuant to this Option or the Plan shall be in writing and shall be deemed to be delivered upon receipt or, in the case of notices by the Company, five (5) 

days after deposit in the U.S. mail, postage prepaid, addressed to Optionee at the address last provided by Optionee for his or her employee records.

16.

Agreement Subject to Plan; Applicable Law.  This Option is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of such Plan is available to Optionee, at no charge, at the principal office of the Company. Any provision of this Option inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan. This Option has been granted, executed and delivered in the State of Florida, and the interpretation and enforcement shall be governed by the laws thereof and subject to the exclusive jurisdiction of the courts therein.

17.

 For purposes of this Option a termination of employment for "for cause" occurs if  the Optionee’s employment is terminated for any of the following reasons: 

(i) theft, dishonesty, or falsification of any employment or Company records; 

(ii) improper disclosure of the Company’s confidential or proprietary information; 

(iii) any intentional act by the Optionee which has a material detrimental effect on the Company’s reputation or business; 

(v) the Optionee’s failure or inability to perform any reasonable assigned duties after written notice from the Company of, and a reasonable opportunity to cure, such failure or inability; and 

(vi) any material breach by the Optionee of an agreement, including this Option, between the Company and the Optionee,  which breach is not cured within 10 days following written notice of such breach from the Company. 

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

HepaLife Technologies, Inc.

By: ________________________________

Harmel S. Rayat, Chief Financial Officer and Authorized Signatory

____________________________________

Frank Menzler, Optionee

(one of the following, as appropriate, shall be signed)

I certify that as of the date

By his or her signature, the

hereof I am unmarried

spouse of Optionee hereby agrees

to be bound by the provisions of

the foregoing NONSTATUTORY STOCK

OPTION AGREEMENT

____________________________

________________________________

Optionee

Spouse of Optionee

Appendix A

NOTICE OF EXERCISE

HepaLife Technologies, Inc.

Suite 216 -1628 West 1st Avenue

Vancouver, BC

V6J 1G1

Attention: Chief Financial Officer

Re: 

Nonstatutory Stock Option

Notice is hereby given pursuant to Section 6 of my Nonstatutory Stock Option Agreement that I elect to purchase the number of shares set forth below at the exercise price set forth in my option agreement:

Nonstatutory Stock Option Agreement dated: ____________

Number of shares being purchased: ____________

Exercise Price: $____________

A check in the amount of the aggregate price of the shares being purchased is attached.

I hereby confirm that such shares are being acquired by me for my own account for investment purposes, and not with a view to, or for resale in connection with, any distribution thereof. I will not sell or dispose of my Shares in violation of the Securities Act of 1933, as amended, or any applicable federal or state securities laws.

I understand that the certificate representing the Option Shares will bear a restrictive legend within the contemplation of the Securities Act and as required by such other state or federal law or regulation applicable to the issuance or delivery of the Option Shares.

Further, I understand that, as a result of this exercise of rights, I will recognize income in an amount equal to the amount by which the fair market value of the Shares exceeds the exercise price. I agree to report such income in accordance with then applicable law and to cooperate with Company in establishing the withholding and corresponding deduction to the Company for its income tax purposes.

I agree to provide to the Company such additional documents or information as may be required pursuant to the Company’s 2001 Incentive Stock Plan.

_______________________________

(signature)

_______________________________

(print name of Optionee)

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