Document:

ex10_2.htm

    
      

    

    Exhibit
10.2

    

    REGISTRATION
RIGHTS AGREEMENT

    

    This
Registration Rights Agreement (this “Agreement”) is made
and entered into as of October 3, 2008 between HepaLife Technologies, Inc., a
Florida corporation (the “Company”) and Arbios
Systems, Inc., a Delaware corporation (the “Arbios”).

    

    RECITALS

    

    

    Whereas,
the Company and Arbios are parties to an Asset Purchase Agreement dated October
3, 2008 (the “Asset
Purchase Agreement”) pursuant to which the Company has acquired from
Arbios and Arbios  has sold to the Company the Acquired Assets (as
defined in the Asset Purchase Agreement).

    

    Whereas,
as part of the consideration to be paid in connection with the purchase and sale
of the Acquired Assets, the Company issued to Arbios the Series D Warrant
entitling Arbios to purchase up to 750,000 shares (the “Series D Warrant
Shares”) of the Company’s Common Stock (as defined below) at an exercise
price of $0.35 per share for a period of five (5) years from the Closing Date
(as defined in the Asset Purchase Agreement”).

    

    Whereas,
in connection with the issuance of the Series D Warrant Shares upon exercise of
the Series D Warrant, the Company has agreed to provide the registration rights
set forth in this Agreement.

    

    AGREEMENT

    

    NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements herein contained, and intending to be legally bound hereby, the
parties agree as follows:

    

    1.           Definitions

    

    Capitalized
terms used and not otherwise defined herein that are defined in the Asset
Purchase Agreement shall have the meanings given such terms in the Asset
Purchase Agreement.

    

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

    

    “Asset Purchase
Agreement” has the meaning set forth in the Recitals.

    

    “Agreement” means this
Registration Rights Agreement.

    

    ”Business Day” means
any day that is not a Saturday, a Sunday or other day on which banks are
required or authorized by law to be closed in The City of New
York.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Common Stock” means
the common stock of the Company, par value $0.001 per share, and any other class
of securities into which such securities may hereafter be reclassified or
changed into.

    

    “Consent” means the
consent of all of the holders of the Series C Warrants to the inclusion of the
Series D Warrant Shares in any Series C Registration Statement.

    

    “Effectiveness Date”
means, with respect to any Registration Statement  filed hereunder
registering the Series D Warrant Shares for resale by Arbios, a date which is no
later than the ninth (9th) month
anniversary of the date hereof; provided, however, that in the
event the Company is notified by the SEC that one or more of the Registration
Statements will not be reviewed or is no longer subject to further review and
comments, the Effectiveness Date as to such Registration Statement shall be the
fifth Business Day following the date on which the Company is so notified if
such date precedes the dates otherwise required above.

    

    “Effectiveness Period”
shall have the meaning set forth in Section 2.

    

    “Exchange Act” means
the Securities Exchange Act of 1934, as amended.

    

    “Filing Date” means,
with respect to any Registration Statement required pursuant to Section 2.1
hereof,  a date no later than the 90th
calendar day following the date on which the Series C Registration Statement is
declared effective by the SEC.

    

    “Holders” or “Holder” means Arbios
or any Person who shall acquire or hold Registrable Securities.

    

    “Losses” shall have
the meaning set forth in Section 4(a).

    

    ”Person” means any
individual, corporation, partnership, limited liability company, limited
liability partnership, syndicate, person, trust, association, organization or
other entity or any governmental or regulatory body or other agency or authority
or political subdivision thereof, including any successor, by merger or
otherwise, of any of the foregoing.

    

    “Piggy-Back
Registration” has the meaning set forth in Section 2.2.

    

    “Prospectus” means the
prospectus included in a Registration Statement (including, without limitation,
a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated by the SEC pursuant to the Securities Act), 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 a Registration
Statement, and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Registrable
Securities” means the Series D Warrant Shares and  any
securities issued or issuable upon any stock split, dividend or other
distribution,  recapitalization or similar event with respect to the
foregoing subject however to any limitations imposed by applicable SEC
guidelines

    

    “Registration
Expenses” has the meaning set forth in Section 3.4.

    

    “Registration
Statement” means the registration statement required to be filed
hereunder including (in each case) the Prospectus, amendments and supplements to
such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration
statement.

    

    “Rule 144” means Rule
144 as promulgated by the SEC pursuant to the Securities Act, as such Rule may
be amended or interpreted from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same purpose and effect as
such Rule.

    

    “Rule 415” means Rule
415 as promulgated by the SEC pursuant to the Securities Act, as such Rule may
be amended or interpreted from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same purpose and effect as
such Rule.

    

    “SEC” or “Commission” means the
United States Securities and Exchange SEC.

    

    “SEC Guidance” means
(i) any publicly-available written or oral guidance, comments, requirements or
requests of the SEC staff and (ii) the Securities Act.

    

    “Series C Registration
Statement” means the registration statement filed pursuant to the
Registration Rights Agreements between the Company and the holders of the Series
C Warrants pursuant to which all of the Series C
Warrant Shares (or the outstanding balance of any such shares not previously
registered are registered) shall have been included for resale by the holders
thereof.

    

    “Series C Warrants”
means the Company’s issued and outstanding Series C Warrants.

    

    “Series C Warrant
Shares” means the shares of the Company’s common stock issuable upon
exercise of the Series C Warrants.

    

    “Series D Warrant”
shall have the meaning ascribed thereto in the recitals to this
Agreement.

    

    “Series D Warrant
Shares” shall have the meaning ascribed thereto in the recitals to this
Agreement.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Special Registration
Statement” means a registration statement (i) on Form S-4 or Form S-8
(each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the Company’s stock option or other employee benefit plans or
(ii) filed to register any of the Company’s currently outstanding warrants and
the common stock underlying such warrants, including but not limited to a Series
C Registration Statement (other than with respect to the rights of the
Arbios).

    

    “Valid Business
Reason” has the meaning ascribed thereto in Section 2.1.2.

    

    2.            Registration

    

    2.1 Shelf
Registration.

    

    2.1.1. 
Mandatory
Filing. Subject to receipt of necessary information in writing from the
Holders, on or prior the Filing Date, the Company shall use its best efforts to
prepare and file with the SEC a Registration Statement, on Form S-1, covering
the resale of all or such maximum portion of the Registrable Securities as
permitted by SEC Guidance.  The Company shall use its best efforts to
cause the Registration Statement to be declared effective under the Securities
Act as promptly as possible after the filing thereof, and shall use its best
efforts to keep such Registration Statement continuously effective under the
Securities Act until all Registrable Securities covered by such Registration
Statement have been sold, or may be sold without volume restrictions pursuant to
Rule 144 or any successor rule, as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Transfer Agent and Arbios (the “Effectiveness
Period”).

    

    2.1.2. 
Valid Business Purpose
For Not Filing. Notwithstanding anything to the contrary contained in
this Agreement, the Company will not be required to file any registration
statement pursuant to this Agreement, file any amendment thereto, furnish any
supplement to a prospectus included in any registration statement, make any
other filing with the SEC required pursuant to this Agreement, cause any
registration statement or other filing with the SEC to become effective, or take
any similar action, and may withdraw the filing of any such registration
statement or related filing if, in the opinion of outside counsel to the
Company, (i) an event has occurred and is continuing as a result of which
any registration statement, prospectus or other filing relating to the
Registration Rights would contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) such actions would require the
disclosure of material non-public information which the Company has a bona fide
business purpose for preserving as confidential and which the Company would not
otherwise be required to disclose ((i) and (ii) each, a “Valid Business
Reason”), until such Valid Business Reason no longer exists;  provided, however, that in no
event shall the Company avail itself of such right for more than 45 consecutive
days or 90 days, in the aggregate, in any period of 360 consecutive days;
and the Company shall give notice to the Holders of its determination to take
any action pursuant to this Section
2.1.2  and of the fact that the Valid Business Reason for such action
no longer exists, in each case, promptly after the occurrence
thereof.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    If the
Company shall give any notice of the taking of any action pursuant to the
foregoing paragraph, the Company shall not register any equity security of the
Company during the period such action remains in effect. Each Holder of
Registrable Securities agrees that, upon receipt of any notice from the Company
that the Company has determined to take any action pursuant to the foregoing
paragraph, such Holder will discontinue its disposition of Registrable
Securities pursuant to such registration statement. If the Company shall give
any notice of the taking of any action pursuant to the foregoing paragraph, at
such time as the Valid Business Reason that caused such action no longer exists
(but in no event more than 90 days after the date of the taking of such
action), the Company shall promptly use its commercially reasonable best efforts
to effect the registration under the Securities Act of all of the Registrable
Securities the registration of which has thereby been delayed or, as the case
may be, to take all action required to permit sales of the Registrable
Securities to resume.

    

    

    2.2 Piggyback
Registration. If, at any time on or after the date hereof and prior to
the filing of the Registration Statement contemplated by Section 2.1 hereof, the
Company proposes to file a Registration Statement under the Securities Act other
than a Special Registration Statement then the Company shall (x) give
written notice of such proposed filing to the Holders as soon as practicable but
in no event less than ten (10) days before the anticipated filing date,
which notice shall describe the amount and type of securities to be included in
such offering, the intended method(s) of distribution, and the name of the
proposed managing Underwriter or Underwriters, if any, of the offering, and
(y) offer to the Holders the opportunity to register the sale of such
number of shares of Registrable Securities as the Holders may request in writing
within ten (10) days following receipt of such notice (a “Piggy-Back
Registration”). The Company shall cause such Registrable Securities to be
included in such registration, to the extent the Company may do so, on the same
terms and conditions as any similar securities of the Company, without violating
the registration rights of others as in effect from time to time, subject
to customary underwriter cutbacks applicable to all holders of registration
rights (which cutbacks shall be  pro
rata  according to the shares that the holders of Registration
Rights wish to sell) and subject to obtaining any required consent of any
selling stockholder(s) to such inclusion under such registration statement.
Anything herein to the contrary notwithstanding, if the Company, in its sole
discretion, elects to solicit the Consent and, in fact obtains the Consent, then
the provisions of this Section 2.2 shall apply to a Series C Registration
Statement.

    

    2.2.1.  Underwriter’s
Agreement. If the Holders propose to distribute their respective
securities through a Piggy-Back Registration that involves an Underwriter or
Underwriters, then the Holder shall enter into an underwriting agreement in
customary form for selling shareholders with the Underwriter or Underwriters
selected for such Piggy-Back Registration.

    

    2.2.2. 
Cutbacks Pursuant to
Rule 415 or Underwriters Advice. In the event a cutback is requested by
the Commission in a written comment to the Company pursuant to Rule 415 of the
Securities Act, or upon the advice of the Underwriter, if any, the number of
shares of Registrable Securities to be included in a registration statement
shall be subject to a reduction as follows:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (a)

            	
              first,
      pro rata among all of the persons named in the registration statement as
      selling security holders; and

            

    

    
      	
               
      

            	
              (b)

            	
              second,
      to any securities being registered on behalf of the
    Company.

            

    

    

    2.2.3. 
Withdrawal. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 2.2 prior to the effectiveness of such registration whether or not the
Holders have elected to include securities in such registration.  The
Registration Expenses of such withdrawn registration shall be borne by the
Company.

    

    3.          
  Registration
Procedures.

    

    3.1 Company Obligations.
In connection with the registration of Registrable Securities under the
Securities Act as provided in this Agreement, the Company:

    

    (a) shall
prepare and file with the SEC the requisite registration statements, which shall
comply as to form in all material respects with the requirements of the
applicable form and shall include all financial statements required by the SEC
to be filed therewith, and use commercially reasonable best efforts to cause
such registration statements to become and remain effective for the duration of
the Registration Period;  provided,  however, that before
filing a registration statement or prospectus or any amendments or supplements
thereto, or comparable statements under securities or blue sky laws of any
jurisdiction, the Company will furnish the sellers of Registrable Securities
copies of all such documents proposed to be filed (including all exhibits
thereto);

    

    (b) shall
prepare and file with the SEC such amendments and supplements to such
registration statements and the prospectus used in connection therewith as may
be necessary to keep such registration statements effective for such period as
any seller of Registrable Securities pursuant to such registration statements
shall request and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all Registrable Securities covered
by such registration statements in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statements;

    

    (c) shall
furnish, without charge, to each seller of such Registrable Securities such
number of copies of such registration statements, each amendment thereto, the
prospectus included in such registration statements and each preliminary
prospectus, all in conformity with the requirements of the Securities Act, and
such other documents as such seller reasonably may request in order to
facilitate the public sale or other disposition of the Registrable Securities
owned by such seller, and shall consent to the use in accordance with all
applicable law of such registration statements, each amendment thereto and each
such prospectus or preliminary prospectus by each such seller of Registrable
Securities in connection with the offering and sale of the Registrable
Securities covered by such registration statements or
prospectus;

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (d) if
required by law, shall use commercially reasonable efforts to register or
qualify the Registrable Securities covered by such registration statements under
such other securities or “blue sky” laws of such jurisdictions as any sellers of
Registrable Securities reasonably shall request, and do any and all other acts
and things that may be required by law in order to enable such sellers to
consummate the disposition of the Registrable Securities in such jurisdictions,
except that in no event shall the Company be required to qualify to do business
as a foreign corporation in any jurisdiction where, but for the requirements of
this  Section 3.1 (d), it would not be required to be so
qualified, to subject itself to taxation in any such jurisdiction or to consent
to general service of process in any such jurisdiction;

    

    (e) shall
promptly notify each Holder selling Registrable Securities covered by each such
registration statement:

    

    (i) when
the registration statement, any pre-effective amendment, the prospectus or any
prospectus supplement related thereto or any post-effective amendment to the
registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become
effective;

    

    (ii) of
any request by the SEC or state securities authority for amendments or
supplements to the registration statement or the prospectus related thereto or
for additional information;

    

    (iii) of
the issuance by the SEC of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that
purpose;

    

    (iv) of
the receipt by the Company of any notification with respect to the suspension of
the qualification of any Registrable Securities for sale under the securities or
blue sky laws of any jurisdiction or the initiation of any proceeding for such
purpose; and

    

    (v) if,
for a Valid Business Purpose, the Company has determined that it would be
inadvisable to continue to use the registration statement or the prospectus
related thereto or the information conveyed to any purchaser at the time of sale
to such purchaser in connection with the sale of any Registrable Securities;
and

    

    (f) shall
provide and cause to be maintained a transfer agent and registrar for all such
Registrable Securities covered by such registration statement not later than the
effective date of such registration statement;

    

    (g) shall
use reasonable best efforts to obtain the withdrawal of any order suspending the
effectiveness of the registration statement; and

    

    (i) shall
cooperate with the sellers of Registrable Securities to facilitate the timely
preparation and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause such Registrable
Securities to be issued in such denominations and registered in such in
accordance with the instructions of the sellers of Registrable Securities at
least three Business Days prior to any sale of Registrable Securities and
instruct any transfer agent and registrar of Registrable Securities to release
any stop transfer orders in respect thereof.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.2           Information. The
Company may require as a condition precedent to the Company’s obligations under
this Section 3 that each seller of Registrable Securities as to which any
registration is being effected furnish the Company, in a timely manner, such
information in writing regarding such seller and the distribution of such
Registrable Securities as the Company from time to time reasonably may request
to comply with Items 507 and 508 of Regulation S-K under the Securities
Act.

    

    3.3          
Discontinuance of
Use.  Each seller of Registrable Securities agrees that upon
receipt of any notice from the Company under Section 3.1(e) (ii) through
(v), such seller will discontinue such seller’s disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such seller’s receipt of copies of the supplemented or amended
prospectus. The Company is entitled to instruct its transfer agent to impose
“stop transfer instructions” with respect to the Registrable Securities whenever
the transfer of such Registrable Securities is prohibited pursuant to this
Agreement or applicable law.

    

    3.4.           Registration
Expenses. All fees and expenses incident to the performance of or
compliance with this Agreement by the Company (collectively, “Registration
Expenses”) shall be borne by the Company whether or not any Registrable
Securities are sold pursuant to a Registration Statement. Notwithstanding any
other provision of this Agreement, in no event shall the Company be responsible
for any broker or similar commissions of any Holder or, any legal fees or other
costs of any Holder and any such fees, costs and expenses shall not be included
in Registration Expenses.

    

    3.5          
 No Required
Sale.
Nothing in this Agreement shall be deemed to create an independent obligation on
the part of any Holder to sell any Registrable Securities pursuant to any
effective registration statement.  However, if any Holder elects not
to have its Registrable Securities included in a Registration Statement filed
pursuant to this Agreement, then the Company’s obligation to register such
Holder’s Registrable Securities pursuant hereto is terminated.

    

    4.           Indemnification.

    

    (a) In
the event of any registration of any securities of the Company under the
Securities Act pursuant hereto, the Company will, and hereby agrees to,
indemnify and hold harmless, to the extent permitted by law, each Holder of
Registrable Securities, its directors, officers, fiduciaries, employees, agents,
affiliates, consultants, representatives, general and limited partners,
stockholders, successors, assigns (and the directors, officers, employees and
stockholders thereof), and each other Person, if any, who controls such Holder
within the meaning of the Securities Act, from and against any and all losses,
claims, damages or liabilities, joint or several, actions or proceedings
(whether commenced or threatened) and expenses (including reasonable fees of
counsel and any amounts paid in any settlement effected with the Company’s
consent, which consent shall not be unreasonably withheld or delayed) to which
each such indemnified party may become subject under the Securities Act or
otherwise in respect thereof (collectively, “ Losses ”), insofar as such
Losses arise out of or are based upon:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (i) any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement under which such securities were registered under the
Securities Act or 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; or

    

    (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus or any amendment or supplement thereto,
together with the documents incorporated by reference therein, or the omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and the Company will reimburse any such indemnified party
for any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such Loss as such expenses are
incurred;

    

    Provided, however , that the
Company shall not be liable to any such indemnified party in any such case to
the extent such Loss arises out of or is based upon any untrue statement or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact made in such registration statement or amendment thereof or
supplement thereto or in any such prospectus or any preliminary, final or
summary prospectus in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such indemnified party specifically
for use therein. Such indemnity and reimbursement of expenses shall remain in
full force and effect regardless of any investigation made by or on behalf of
such indemnified party and shall survive the transfer of such securities by such
Holder.

    

    (b) Each
Holder of Registrable Securities that are included in the securities as to which
the registration hereunder is being effected shall, jointly and severally as to
Arbios and any of its Affiliates, and severally but not jointly as to any other
Holders, indemnify and hold harmless (in the same manner and to the same extent
as set forth in paragraph (a) of this Section 4 to the extent
permitted by law the Company, its officers and directors and each Person
controlling the Company within the meaning of the Securities Act and all other
prospective sellers and their respective directors, officers, fiduciaries,
employees, agents, affiliates, consultants, representatives, general and limited
partners, stockholders, successors, assigns and respective controlling Persons
with respect to any untrue statement or alleged untrue statement of any material
fact in, or omission or alleged omission of any material fact from, such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or its
representatives by or on behalf of such Holder specifically for use therein and
reimburse such indemnified party for any legal or other expenses reasonably
incurred in connection with investigating or defending any such Loss as such
expenses are incurred. Such indemnity and reimbursement of expenses shall remain
in full force and effect regardless of any investigation made by or on behalf of
such indemnified party and shall survive the transfer of such securities by such
Holder.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (c) Any
Person entitled to indemnification under this Agreement promptly shall notify
the indemnifying party in writing of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 4, but the failure of any such Person to provide
such notice shall not relieve the indemnifying party of its obligations under
the preceding paragraphs of this  Section 4, except to the extent
the indemnifying party is materially prejudiced thereby and shall not relieve
the indemnifying party from any liability that it may have to any such Person
otherwise than under this Agreement. In case any action or proceeding is brought
against an indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, unless in the reasonable opinion of outside counsel to the
indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof jointly with any other indemnifying party similarly notified, to the
extent that it chooses, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
that it so chooses, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided,  however , that
(i) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the action or proceeding within 20 days after receiving
notice from such indemnified party, (ii) if such indemnified party who is a
defendant in any action or proceeding that is also brought against the
indemnifying party reasonably shall have concluded that there may be one or more
legal defenses available to such indemnified party that are not available to the
indemnifying party or (iii) if representation of both parties by the same
counsel is otherwise inappropriate under applicable standards of professional
conduct, then, in any such case, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the
extent any indemnified party or parties reasonably shall have concluded that
there may be legal defenses available to such party or parties that are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct), and the indemnifying party shall
be liable for any expenses therefor. Without the written consent of the
indemnified party, which consent shall not be unreasonably withheld, no
indemnifying party shall effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder, whether or not the indemnified party is an actual or potential party
to such action or claim, unless such settlement, compromise or judgment
(A) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.

    

    (d) If
for any reason the foregoing indemnity is unavailable or is insufficient to hold
harmless an indemnified party under Section  4(a), (b) or (c), then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of any Loss in such proportion as is appropriate
to reflect the relative fault of the indemnifying party, on the one hand, and
the indemnified party, on the other hand, with respect to such offering of
securities. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party and the parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. If, however, the allocation provided
in the second preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative faults but also the relative benefits of the indemnifying party and the
indemnified party as well as any other relevant equitable considerations. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this  Section 4 (d)  were to be determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the preceding sentences
of this Section 4(d). The amount paid or payable in respect of any Loss
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
Loss. No Person guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the Securities Act shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (e) The
indemnity and contribution agreements contained herein shall be in addition to
any other rights to indemnification or contribution which any indemnified party
may have pursuant to law or contract and shall remain operative and in full
force and effect regardless of any investigation made or omitted by or on behalf
of any indemnified party and shall survive the transfer of the Registrable
Securities by any such party.

    

    5.         
   Miscellaneous.

    

    5.1 Amendment and
Waiver.

    

    (a) Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and Arbios or, in the case of a waiver, by the party or parties
against whom the waiver is to be effective;

    

    (b) No
failure or delay of any party in exercising any right or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such right or power, or any course of conduct, preclude any other or further
exercise thereof or the exercise of any other right or power. The rights and
remedies of the parties hereunder are cumulative and are not exclusive of any
rights or remedies which they would otherwise have hereunder. Any agreement on
the part of any party to any such waiver shall be valid only if set forth in a
written instrument executed and delivered by such party if an individual or a
duly authorized officer on behalf of such party if an entity.

    

    5.2    Notices. Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be delivered as set forth in the Asset Purchase
Agreement.

    

    5.3    Interpretation. When
a reference is made in this Agreement to a Section or Article, such reference
shall be to a Section or Article of this Agreement unless otherwise indicated.
The headings contained in this Agreement are for convenience of reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. The word “including” and words of
similar import when used in this Agreement will mean “including, without
limitation”, unless otherwise specified.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    5.4    Entire Agreement.
This Agreement, the Series D Warrant and the Purchase Agreement (and any related
agreements referred to therein) constitute the entire agreement, and supersede
all prior written agreements, arrangements, communications and understandings
and all prior and contemporaneous oral agreements, arrangements, communications
and understandings between the parties with respect to the subject matter hereof
and thereof. This Agreement shall not be deemed to contain or imply any
restriction, covenant, representation, warranty, agreement or undertaking of any
party with respect to the transactions contemplated hereby other than those
expressly set forth herein or in any document required to be delivered
hereunder, and none shall be deemed to exist or be inferred with respect to the
subject matter hereof. In the event of any express conflict between the terms of
this Registration Rights Agreement, the Asset Purchase Agreement and the other
agreements referenced herein and therein to which both the Company and the
Holder are a party, this Agreement shall govern.

    

    5.5    No Third-Party
Beneficiaries. Except as provided in Section  4, nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person
other than the parties and their respective successors and permitted assigns any
legal or equitable right, benefit or remedy of any nature under or by reason of
this Agreement.

    

    5.6    Assignment;
Successors. This Agreement will be binding upon, inure to the benefit of,
and be enforceable by, the parties and their respective successors and
assigns;  provided,
however,  that such successors and assigns agree in writing,
within 2 Business Days of the purported assignment, to acquire and hold the
Registrable Securities acquired from such Holder subject to all of the terms
hereof. If any Holder shall acquire additional Registrable Securities, such
Registrable Securities shall be subject to all of the terms, and entitled to all
of the benefits, of this Agreement.

    

    5.7    Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

    

    5.8    Rule 144. With a view
to making available to the Holders the benefits of Rule 144 and any other
rule or regulation of the SEC that may at any time permit any Holder to sell
Registrable Securities to the public without registration, the Company shall use
its reasonable efforts to (a) make and keep public information available,
as those terms are understood and defined in Rule 144, until such date as
all of Registrable Securities shall have been eligible to be resold under
Rule 144; and (b) file with the SEC in a timely manner all reports and
other documents required to be filed by the Company under the Exchange
Act.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    5.9       
    Compliance. With
respect to the transactions contemplated hereby, each of Holders covenants and
agrees that it will comply with the prospectus delivery requirements of the
Securities Act as applicable to it in connection with sales of Registrable
Securities pursuant to a Registration Statement.

    

    5.10           No Presumption Against
Drafting Party. Each of the parties hereto acknowledges that it has been
represented by counsel in connection with this Agreement and the transactions
contemplated by this Agreement. Accordingly, any rule of law or any legal
decision that would require interpretation of any claimed ambiguities in this
Agreement against the drafting party has no application and is expressly
waived.

    

    5.11           Execution and
Counterparts. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.  In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.

    

    5.12          
Termination.
This Agreement shall terminate at the expiration of the Effectiveness Period,
provided, however, that Section 4 hereof and
shall survive such termination and shall remain in full force and effect for a
period of one year thereafter.

    

    5.13           Submission to
Jurisdiction. Each of the parties irrevocably agrees that any legal
action or proceeding arising out of or relating to this Agreement brought by any
party or its or his successors or assigns shall be brought and determined in the
State of New York or federal court sitting in the State of New York in New York
City (or, if no such court has subject matter jurisdiction, in any appropriate
New York State or federal court), and each of the parties hereby irrevocably
submits to the exclusive jurisdiction of the aforesaid courts for itself or
himself and with respect to its or his property, generally and unconditionally,
with regard to any such action or proceeding arising out of or relating to this
Agreement and the transactions contemplated hereby. Each of the parties agrees
not to commence any action, suit or proceeding relating thereto except in the
courts described above in New York, other than actions in any court of competent
jurisdiction to enforce any judgment, decree or award rendered by any such court
in New York as described herein. Each of the parties hereby irrevocably and
unconditionally waives, and agrees not to assert, by way of motion or as a
defense, counterclaim or otherwise, in any action or proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby,
(a) any claim that it or he is not personally subject to the jurisdiction
of the courts in New York as described herein for any reason, (b) that it
or he or its or his property is exempt or immune from jurisdiction of any such
court or from any legal process commenced in such courts (whether through
service of notice, attachment prior to judgment, attachment in aid of execution
of judgment, execution of judgment or otherwise) and (c) that (i) the
suit, action or proceeding in any such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper or
(iii) this Agreement or the subject matter hereof, may not be enforced in
or by such courts.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    5.14           Waiver of Jury
Trial;
Attorney’s Fees. Each of the parties to this agreement hereby irrevocably
waives all right to a trial by jury in any action, proceeding or counterclaim
arising out of or relating to this agreement or the transactions contemplated
hereby.  If either party shall commence an action or proceeding to
enforce any provisions of this Agreement, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred in the investigation,
preparation and prosecution of such action or proceeding.

    

    5.15           Governing Law. This Agreement
shall be governed by and interpreted and construed in accordance with the laws
of the State of New York applicable to contracts formed and to be performed
entirely within New York, without regard to the conflicts of law provisions
thereof to the extent such principles or rules would require or permit the
application of the laws of another jurisdiction.

    

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

    

    

    

    HepaLife
Technologies, Inc.

    

    By: /s/ Frank
Menzler

    Name:  Frank
Menzler

    Title:  President,
Chief Executive Officer and Chairman

    

    

    Arbios
Systems, Inc.

    

    

    By: /s/ Shawn Cain

    Name:  Shawn
Cain

    Title:  Interim
President & Interim Chief Executive Officerex10_3.htm

    
      

    

    Exhibit  10.3

    

    October
1, 2008

    

    

    Martha B.
Steinbock

    cc:
Robert J. Griesbach

    USDA-ARS-OTT

    5601
Sunnyside Avenue

    Beltsville,
MD 20705-5131

    

    

    RE:  Termination
of CRADA 58-3K95-8-1238

    

    Dear Mrs.
Steinbock,

    

    According
to Article 13 of our Cooperative Research and Development Agreement
58-3K95-8-1238 between USDA/ARS and HepaLife Biosystems, Inc., herewith we
provide written notice to terminate the agreement effective November 30,
2008.

    

    We would
like to thank you for the very fruitful R&D cooperation over the last
years.

    

    Please do
not hesitate to contact me if there are further questions.

    

    

    

    Sincerely,

    

    HEPALIFE
BIOSYSTEMS, INC

    

    

    

    /s/
Frank Menzler

    

    Frank Menzler

    Chief
Executive Officer

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