Document:

Unassociated Document

    
      Exhibit
        4.1

      

      2005
        STOCK INCENTIVE PLAN

      OF

      ARBIOS
        SYSTEMS, INC.

      

      1.    PURPOSES
        OF THE PLAN.

      

      The
        purposes of the 2005 Stock Incentive Plan (the “Plan”) of Arbios Systems, Inc.,
        a Delaware corporation (the “Company”), are to:

      

      1.1    Encourage
        selected employees, officers, directors, consultants and advisers to improve
        operations and increase the profitability of the Company;

      

      1.2    Encourage
        selected employees, officers, directors, consultants and advisers to accept
        or
        continue employment or association with the Company or its Affiliates (as
        defined below); and

      

      1.3    Increase
        the interest of selected employees, officers, directors, consultants and
        advisers in the Company’s welfare through participation in the growth in value
        of the common stock of the Company, no par value (the “Common
        Stock”).

      

      2.    TYPES
        OF
        AWARDS; ELIGIBLE AWARD RECIPIENTS.

      

      2.1    Types
        of
        Awards. The Administrator (as defined below) may, from time to time, take
        the
        following actions, separately or in combination, under the Plan: 

      

      (a)    Grant
        incentive stock options (“Incentive Options”) that are intended to satisfy the
        requirements of Section 422 of the Internal Revenue Code of 1986, as amended
        (the “Code”), and the regulations thereunder; 

      

      (b)    Grant
        non-qualified stock options that are not Incentive Options (“Non-Qualified
        Options”); and 

      

      (c)    Grant
        or
        sell shares of Common Stock that are subject to specified restrictions such
        as,
        without limitation, continued employment with the Company or the attainment
        of
        specified performance goals (“Restricted Stock”). Incentive Options and
        Non-Qualified Options are jointly referred to in the Plan as “Options,” and the
        persons who receive grants of Options are referred to in the Plan as “Option
        Holders.”

      

      2.2    Eligible
        Award Recipients. Awards of Options and Restricted Stock may be made to
        employees of the Company or any of its Affiliates, including employees who
        are
        officers or directors, to non-employee directors of the Company or any of
        its
        Affiliates and to the other individuals described in Section 1 of the Plan
        whom
        the Administrator believes have made or will make a contribution to the Company
        or any Affiliate; provided, however, that only a person who is an employee
        of
        the Company or any Affiliate at the date of the grant of an Option is eligible
        to receive Incentive Options under the Plan. The term “Affiliate” as used in the
        Plan means a parent or subsidiary corporation of the Company as defined in
        the
        applicable provisions (currently Sections 424(e) and (f), respectively) of
        the
        Code. The term “employee” includes an officer or a director who is also an
        employee of the Company or one of its Affiliates. The term “consultant” includes
        persons employed by, or otherwise affiliated with, a consultant to the Company
        or one of its Affiliates. The term “adviser” includes persons employed by, or
        otherwise affiliated with, an adviser to the Company or one of its Affiliates.
        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      3.    STOCK
        SUBJECT TO THE PLAN; MAXIMUM NUMBER OF GRANTS.

      

      Subject
        to the adjustment provisions of Sections 6.1.1 and 8.2 of the Plan, the total
        number of shares of Common Stock that may be issued under the Plan shall
        not
        exceed Three Million (3,000,000) shares of Common Stock. The shares covered
        by
        the portion of any award under the Plan that expires, terminates or is cancelled
        unexercised shall become available again for grants under the Plan. If shares
        of
        Restricted Stock awarded under the Plan are forfeited to the Company or
        repurchased by the Company, the number of shares forfeited or repurchased
        shall
        again be available under the Plan. Where the exercise price of an Option
        is paid
        by means of the Option Holder’s surrender of shares of Common Stock or the
        Company’s withholding of shares otherwise issuable upon exercise of the Option
        as permitted in the Plan, only the net number of shares issued and which
        remain
        outstanding in connection with such exercise shall be deemed issued and no
        longer available for issuance under the Plan. Subject to the adjustment
        provisions of Sections 6.1.1 and 8.2 of the Plan, no eligible person shall
        be
        granted Options or Restricted Stock during any twelve-month period covering
        more
        than Five Hundred Thousand (500,000) shares of Common Stock.

      

      4.    ADMINISTRATION.

      

      4.1    Plan
        Administrator. The Plan shall be administered by the Board of Directors of
        the
        Company (the “Board”) and/or by one or more committees (jointly referred to in
        the Plan as the “Committee”) to which administration of the Plan, or of
        specified portions of the Plan, is delegated by the Board (the Board or the
        Committee, as applicable, being referred to in the Plan as the “Administrator”).
        The Board shall appoint and remove members of the Committee in its discretion.
        In the Board’s discretion, the Committee may be comprised solely of (i)
“non-employee directors” within the meaning of Rule 16b-3 under the Securities
        Exchange Act of 1934, as amended, and/or (ii) “outside directors” within the
        meaning of Section 162(m) of the Code. The Administrator may delegate
        non-discretionary administrative duties to such employees of the Company
        as it
        deems proper, and the Board, in its discretion, may at any time and from
        time to
        time exercise any and all rights and duties of the Administrator under the
        Plan.

      

      4.2    Administrator’s
        Powers. Subject to the other provisions of the Plan, the Administrator shall
        have the authority, in its discretion: (i) to grant Options and grant or
        sell
        Restricted Stock; (ii) to determine the fair market value of the Common Stock
        subject to Options or Restricted Stock awards; (iii) to determine the exercise
        price of Options or the offering price of Restricted Stock; (iv) to determine
        the persons to whom, and the time or times at which, Options shall be granted
        or
        Restricted Stock shall be granted or sold, and the number of shares subject
        to
        each Option or the number of shares of Restricted Stock granted or sold;
        (v) to
        construe and interpret the terms and conditions of the Plan and of all Option
        Agreements and Restricted Stock Agreements (as defined below); (vi) to
        prescribe, amend and rescind rules and regulations relating to the Plan;
        (vii)
        to determine the terms and conditions of each Option granted and award of
        Restricted Stock (which need not be identical), including, but not limited
        to,
        the time or times at which Options shall be exercisable or the time at which
        the
        restrictions on Restricted Stock shall lapse; (viii) with the consent of
        the
        Option Holder or holder of Restricted Stock, to rescind any award or exercise
        of
        an Option and to amend the terms of any Option or Restricted Stock; (ix)
        to
        reduce the exercise price of any Option or the purchase price of Restricted
        Stock; (x) to accelerate or defer (with the consent of the Option Holder
        or
        holder of Restricted Stock) the exercise date of any Option or the date on
        which
        the restrictions on Restricted Stock lapse; (xi) to authorize any person
        to
        execute on behalf of the Company any instrument evidencing the grant of an
        Option or award of Restricted Stock; (xii) to determine the duration and
        purposes of leaves of absence which may be granted to participants without
        constituting a termination of their employment for the purposes of the Plan;
        and
        (xiii) to make all other determinations deemed necessary or advisable for
        the
        administration of the Plan or of any Option, Option Agreement, award of
        Restricted Stock or Restricted Stock Agreement. 

      

      4.3    Plan
        Interpretation. All questions of interpretation, implementation and application
        of the Plan or of any Option, Option Agreement, award of Restricted Stock
        or
        Restricted Stock Agreement shall be determined by the Administrator, which
        determination shall be final and binding on all persons.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      5.    GRANTING
        OF OPTIONS; OPTION AGREEMENTS.

      

      5.1    No
        Options shall be granted under the Plan more than ten years after the date
        of
        adoption of the Plan by the Board.

      

      5.2    Each
        Option shall be evidenced by a written Option agreement, in form satisfactory
        to
        the Administrator, executed by the Company and the person to whom the Option
        is
        granted (an “Option Agreement”). In the event of a conflict between the terms or
        conditions of an Option Agreement and the terms and conditions of the Plan,
        the
        terms and conditions of the Plan shall govern.

      

      5.3    The
        Option Agreement shall specify whether each Option it evidences is a
        Non-Qualified Option or an Incentive Option; provided, however, that all
        Options
        granted under the Plan to non-employee directors, consultants and advisers
        of
        the Company or its Affiliates are intended to be Non-Qualified
        Options.

      

      5.4    Subject
        to Section 6.3.3 with respect to Incentive Options, the Administrator may
        approve the grant of Options under the Plan to persons who are expected to
        become employees, directors, consultants or advisers of the Company or its
        Affiliates but who are not employees, directors, consultants or advisers
        at the
        date of approval, and the date of approval shall be deemed to be the date
        of
        grant unless otherwise specified by the Administrator.

      

      6.    TERMS
        AND
        CONDITIONS OF OPTIONS.

      

      Each
        Option granted under the Plan shall be subject to the terms and conditions
        set
        forth in Section 6.1. Non-Qualified Options shall also be subject to the
        terms
        and conditions set forth in Section 6.2 but not those set forth in Section
        6.3.
        Incentive Options shall also be subject to the terms and conditions set forth
        in
        Section 6.3 but not those set forth in Section 6.2.

      

      6.1   Terms
        and
        Conditions to Which All Options Are Subject. All Options granted under the
        Plan
        shall be subject to the following terms and conditions:

      

      6.1.1    Changes
        in Capital Structure. Subject to Section 6.1.2, if the stock of the Company
        is
        changed by reason of a stock split, reverse stock split, stock dividend,
        recapitalization, combination or reclassification, appropriate adjustments
        shall
        be made by the Administrator, in its discretion, in (i) the number and class
        of
        shares of stock subject to the Plan and each Option outstanding under the
        Plan,
        and (ii) the exercise price of each outstanding Option; provided, however,
        that
        the Company shall not be required to issue fractional shares as a result
        of any
        such adjustments. Any adjustment, however, in an outstanding Option shall
        be
        made without change in the total price applicable to the unexercised portion
        of
        the Option but with a corresponding adjustment in the price for each share
        covered by the unexercised portion of the Option. Adjustments under this
        Section
        6.1.1 shall be made by the Administrator, whose determination as to what
        adjustments shall be made, and the extent thereof, shall be final, binding
        and
        conclusive. If an adjustment under this Section 6.1.1 would result in a
        fractional share interest under an Option or any installment, the
        Administrator’s decision as to inclusion or exclusion of that fractional share
        interest shall be final, but no fractional shares of stock shall be issued
        under
        the Plan on account of any such adjustment.

      

      6.1.2   Corporate
        Transactions. 

      

      (a)    Unless
        otherwise provided in the Option Agreement, in the event of a Corporate
        Transaction (as defined below), the Administrator shall notify each Option
        Holder at least ten days prior to the date of the Corporate Transaction or
        as
        soon as may be practicable. To the extent not previously exercised, all Options
        shall terminate immediately prior to the consummation of the Corporate
        Transaction unless the Administrator determines otherwise in its discretion.
        The
        Administrator, in the exercise of its discretion after considering any
        applicable tax, accounting, legal and financial consequences, may (i) permit
        exercise of any Options prior to their termination even if such Options would
        not otherwise have been exercisable, (ii) provide that all or certain of
        the
        outstanding Options shall be assumed or an equivalent option substituted
        by an
        applicable successor corporation or other entity or any Affiliate of the
        successor corporation or entity, or (iii) provide that any outstanding Options
        shall be cancelled in exchange for an amount of cash equal to the excess
        of the
        fair market value of the Common Stock underlying the Options as of the Option
        exchange date (as determined pursuant to Section 6.1.9) over the aggregate
        exercise price of the Options. 

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (b)    A
        “Corporate Transaction” means (i) a liquidation or dissolution of the Company;
        (ii) a merger or consolidation of the Company with or into another corporation
        or entity as a result of which the Company is not the surviving corporation
        (other than a merger or consolidation with a wholly owned subsidiary of the
        Company); (iii) a sale of all or substantially all of the assets of the Company;
        or (iv) a purchase or other acquisition of beneficial ownership of more than
        fifty percent of the outstanding capital stock of the Company in a single
        transaction or a series of related transactions by one person or more than
        one
        person acting in concert (excluding, however, a purchase of stock by the
        Company
        or by a Company-sponsored employee benefit plan). 

      

      6.1.3    Time
        of
        Option Exercise. Subject to Sections 6.1.10 and 6.3.4, an Option granted
        under
        the Plan shall be exercisable (i) immediately as of the effective date of
        the
        Option Agreement granting the Option if so provided in the Option Agreement
        or
        (ii) in accordance with a vesting schedule, performance requirement and/or
        requirement of continued employment with the Company or an Affiliate that
        is set
        by the Administrator and specified in the Option Agreement relating to the
        Option. In any case, no Option shall be exercisable until the Company and
        the
        Option Holder have executed an Option Agreement that is in form satisfactory
        to
        the Administrator. 

      

      6.1.4    Option
        Grant Date. The date of an Option grant under the Plan shall be the effective
        date of the Option Agreement granting the Option, provided that the Option
        Agreement shall not specify an effective date that is earlier than the date
        on
        which the Administrator approved the grant of the Option to the Option
        Holder.

      

      6.1.5    Non-Transferability
        of Option Rights. Except with the express written approval of the Administrator,
        which approval the Administrator is authorized to give only with respect
        to
        Non-Qualified Options, or unless otherwise provided in an Option Agreement
        with
        respect to Non-Qualified Options, (i) no Option granted under the Plan shall
        be
        assignable or otherwise transferable by the Option Holder except by will
        or by
        the laws of descent and distribution, and (ii) during the life of the Option
        Holder, an Option shall be exercisable only by the Option Holder. 

      

      6.1.6    Payment.
        Except as provided below, payment in full, in cash or by check, shall be
        made
        for all Common Stock purchased at the time written notice of exercise of
        an
        Option is given to the Company, and the proceeds of any payment shall constitute
        general funds of the Company. After considering any applicable tax, accounting,
        legal and financial consequences, the Administrator may, in the exercise
        of its
        discretion, (i) authorize any one or more of the following additional methods
        of
        payment in the Option Agreement or (ii) in the case of a Non-Qualified Option,
        may also authorize any one or more of the following additional methods of
        payment at the time of the exercise of the Non-Qualified Option:

      

      (a)    Acceptance
        of the Option Holder’s full recourse promissory note for all or part of the
        Option price, payable on such terms and bearing such interest rate as determined
        by the Administrator (but in no event less than the minimum interest rate
        specified under the Code at which no additional interest or original issue
        discount would be imputed), which promissory note may be either secured or
        unsecured in such manner as the Administrator shall approve (including, without
        limitation, by a security interest in the shares of Common Stock acquired
        upon
        exercise of the Option); provided, however, that this method of payment shall
        not be allowed with respect to an Option Holder who is a director or an
        executive officer of the Company;

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (b)    By
        delivery by the Option Holder of shares of Common Stock already owned by
        the
        Option Holder (held for a specified period, if any, to avoid an expense charge
        pursuant to generally accepted accounting principles) for all or part of
        the
        Option price, provided the fair market value (determined as set forth in
        Section
        6.1.9) of such shares of Common Stock is at least equal on the date of exercise
        to the Option price or such portion thereof as the Option Holder is authorized
        to pay by delivery of such stock; and

      

      (c)    By
        means
        of so-called cashless exercises, provided the fair market value (determined
        as
        set forth in Section 6.1.9) of such shares of Common Stock is equal on the
        date
        of exercise to the Option price, or such portion thereof as the optionee
        is
        authorized to pay by surrender of such stock, conducted through brokers in
        accordance with applicable rules and regulations of the Securities and Exchange
        Commission and the Federal Reserve Board. 

      

      6.1.7    Withholding
        Taxes. In the case of an employee exercising a Non-Qualified Option, at the
        time
        of exercise and as a condition thereto, or at such other time as the amount
        of
        such obligation becomes determinable, the Option Holder shall remit to the
        Company in cash all applicable federal and state withholding taxes. Such
        obligation to remit may be satisfied, if authorized by the Administrator
        in its
        discretion, after considering any applicable tax, accounting, legal and
        financial consequences, by the Option Holder’s (i) delivery of a full recourse
        promissory note in the required amount on such terms as the Administrator
        deems
        appropriate (provided that this alternative shall not be allowed with respect
        to
        an Option Holder who is a director or an executive officer of the Company),
        (ii)
        tendering to the Company shares of Common Stock already owned by the Option
        Holder with a fair market value at least equal to the required amount, or
        (iii)
        agreeing to have shares of Common Stock (with a fair market value at least
        equal
        to the required amount) which are acquired upon exercise of the Option withheld
        by the Company.

      

      6.1.8    Other
        Terms. Each Option granted under the Plan may contain such other terms and
        conditions not inconsistent with the Plan as may be determined by the
        Administrator, and each Incentive Option granted under the Plan shall include
        such terms and conditions as are necessary to qualify the Option as an
“incentive stock option” within the meaning of Section 422 of the Code.

      

      6.1.9    Determination
        of Value. For purposes of the Plan, the fair market value of Common Stock
        or
        other securities of the Company shall be determined as follows:

      

      (a)    If
        the
        securities are traded on a national securities exchange, the Nasdaq National
        Market, the Nasdaq Small Cap Market or the over-the-counter market and if
        selling prices are reported, the fair market value shall be the closing price
        of
        such securities on the last business day preceding the date on which the
        fair
        market value of the securities is to be determined but, if selling prices
        are
        not reported, the fair market value shall be the average of the high bid
        and low
        asked prices for such securities on the last business day preceding the date
        on
        which the fair market value of the securities is to be determined (or if
        there
        are no reported prices for the business day specified in this paragraph,
        then
        for the last preceding business day on which there were reported prices);
        and

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (b)    In
        the
        absence of an established market for the securities, the fair market value
        thereof shall be determined in good faith by the Administrator with reference
        to
        the Company’s net worth, prospective earning power, dividend-paying capacity and
        other relevant factors, including the goodwill of the Company, the economic
        outlook in the Company’s industry, the Company’s position in the industry, the
        Company’s management and the values of the stock of other corporations in the
        same or a similar line of business.

      

      6.1.10   Option
        Term. Subject to Section 6.3.4, no Option shall be exercisable more than
        ten
        years after the date of grant or such lesser period of time as is set forth
        in
        the Option Agreement (the end of such maximum exercise period being referred
        to
        in the Plan as the “Expiration Date”).

      

      6.2    Terms
        and
        Conditions to Which Only Non-Qualified Options Are Subject. Options granted
        under the Plan that are designated as Non-Qualified Options shall also be
        subject to the following terms and conditions:

      

      6.2.1    Exercise
        Price. The exercise price of a Non-Qualified Option shall not be less than
        the
        fair market value (determined in accordance with Section 6.1.9) of the Common
        Stock covered by the Option at the time the Option is granted. 

      

      6.2.2    Termination
        of Employment. Except as otherwise provided in the Option Agreement, if for
        any
        reason an Option Holder ceases to be employed by the Company and its Affiliates,
        Options that are Non-Qualified Options held at the date of termination (to
        the
        extent then exercisable) may be exercised in whole or in part at any time
        within
        ninety days after the date of such termination (but in no event after the
        Expiration Date). For purposes of this Section 6.2.2, “employment” includes
        service as a director, consultant or adviser. For purposes of this Section
        6.2.2, an Option Holder’s employment shall not be deemed to terminate by reason
        of the Option Holder’s transfer from the Company to an Affiliate of the Company,
        or vice versa, or sick leave, military leave or other leave of absence approved
        by the Administrator, if the period of any such leave does not exceed ninety
        days or, if longer, if the Option Holder’s right to reemployment by the Company
        or any Affiliate is guaranteed either contractually or by statute.

      

      6.3    Terms
        and
        Conditions to Which Only Incentive Options Are Subject. Options granted under
        the Plan that are designated as Incentive Options shall also be subject to
        the
        following terms and conditions:

      

      6.3.1    Exercise
        Price. The exercise price of an Incentive Option shall not be less than the
        fair
        market value (determined in accordance with Section 6.1.9) of the Common
        Stock
        covered by the Option at the time the Option is granted. The exercise price
        of
        an Incentive Option that is granted to any person who owns, directly or by
        attribution under Section 424(d) of the Code, stock possessing more than
        ten
        percent of the total combined voting power of all classes of stock of the
        Company or of any Affiliate of the Company (a “Ten Percent Shareholder”), shall
        in no event be less than one hundred ten percent (110%) of the fair market
        value
        (determined in accordance with Section 6.1.9) of the Common Stock covered
        by the
        Option at the time the Option is granted.

      

      6.3.2    Disqualifying
        Dispositions. If Common Stock acquired by exercise of an Incentive Option
        granted pursuant to the Plan is disposed of in a “disqualifying disposition”
        within the meaning of Section 422 of the Code, including a disposition within
        two years from the date of grant of the Option or within one year after the
        issuance of such Common Stock on exercise of the Option, the holder of the
        Common Stock immediately before the disposition shall promptly notify the
        Company in writing of the date and terms of the disposition and shall provide
        such other information regarding the Option as the Company may reasonably
        require.

      

      6.3.3    Grant
        Date. If an Incentive Option is granted in anticipation of employment as
        provided in Section 5.4, the Option shall be deemed granted, without further
        approval, on the date the grantee assumes the employment relationship forming
        the basis for such grant and, in addition, satisfies all requirements of
        the
        Plan for Options granted on that date.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      6.3.4    Term.
        Notwithstanding Section 6.1.10, no Incentive Option granted to any Ten Percent
        Shareholder shall be exercisable more than five years after the date of
        grant.

      

      6.3.5    Termination
        of Employment. Except as otherwise provided in the Option Agreement, if for
        any
        reason an Option Holder ceases to be employed by the Company and its Affiliates,
        Options that are Incentive Options held at the date of termination (to the
        extent then exercisable) may be exercised in whole or in part at any time
        within
        ninety days after the date of such termination (but in no event after the
        Expiration Date). For purposes of this Section 6.3.5, an Option Holder’s
        employment shall not be deemed to terminate by reason of the Option Holder’s
        transfer from the Company to an Affiliate of the Company, or vice versa,
        or sick
        leave, military leave or other leave of absence approved by the Administrator,
        if the period of any such leave does not exceed ninety days or, if longer,
        if
        the Option Holder’s right to reemployment by the Company or any Affiliate is
        guaranteed either contractually or by statute.

      

      6.3.6    Fair
        Market Value Limitation. To the extent that Options designated as Incentive
        Options (granted under all stock option plans of the Company and its Affiliates,
        including the Plan) become exercisable by an Option Holder for the first
        time
        during any calendar year for stock having a fair market value greater than
        One
        Hundred Thousand Dollars ($100,000), the portions of such Options which exceed
        such amount shall be treated as Non-Qualified Options. For purposes of this
        Section 6.3.6, Options designated as Incentive Options shall be taken into
        account in the order in which they were granted, and the fair market value
        of
        stock shall be determined as of the time the Option with respect to such
        stock
        is granted. 

      

      7.    MANNER
        OF
        EXERCISE.

      

      7.1    An
        Option
        Holder wishing to exercise an Option shall give written notice to the Company
        at
        its principal executive office, to the attention of the officer of the Company
        designated by the Administrator, accompanied by payment of the exercise price
        and withholding taxes as provided in Sections 6.1.6 and 6.1.7. The date that
        the
        Company receives both written notice of an exercise hereunder and payment
        of the
        exercise price will be considered as the date the Option was
        exercised.

      

      7.2    Promptly
        after receipt of written notice of exercise of an Option and the payment
        called
        for by Section 7.1, the Company shall, without stock issue or transfer taxes
        to
        the Option Holder or other person entitled to exercise the Option, deliver
        to
        the Option Holder or such other person a certificate or certificates for
        the
        requisite number of shares of Common Stock. An Option Holder or permitted
        transferee of the Option shall not have any privileges as a shareholder with
        respect to any shares of Common Stock covered by the Option until the date
        of
        issuance of such shares as evidenced by the appropriate entry on the books
        of
        the Company or of a duly authorized transfer agent.

      

      8.    RESTRICTED
        STOCK.

      

      8.1   Grant
        or
        Sale of Restricted Stock. 

      

      8.1.1    No
        awards
        of Restricted Stock shall be made under the Plan more than ten years after
        the
        date of adoption of the Plan by the Board.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      8.1.2    The
        Administrator may issue shares under the Plan as a grant or for such
        consideration as is determined by the Administrator, including, without
        limitation, services performed by the Restricted Stock recipient and, with
        respect to Restricted Stock recipients who are not directors or executive
        officers of the Company, full recourse promissory notes. Shares issued under
        the
        Plan shall be subject to the terms, conditions and restrictions determined
        by
        the Administrator. The restrictions may include restrictions concerning matters
        such as transferability, continued employment with the Company, attainment
        of
        specified performance goals, repurchase by the Company and forfeiture of
        the
        shares issued, together with such other restrictions as may be determined
        by the
        Administrator. If shares are subject to forfeiture or repurchase by the Company,
        all dividends or other distributions paid by the Company with respect to
        the
        shares may be retained by the Company until the shares are no longer subject
        to
        forfeiture or repurchase, at which time all accumulated amounts shall be
        paid to
        the recipient. All Common Stock issued pursuant to this Section 8 shall be
        subject to a purchase or grant agreement (a “Restricted Stock Agreement”), which
        shall be executed by the Company and the prospective recipient of the shares
        prior to the delivery of certificates representing such shares to the recipient.
        The Restricted Stock Agreement may contain any terms, conditions, restrictions,
        representations and warranties required by the Administrator. The certificates
        representing the shares shall bear any legends required by the Administrator.
        The Administrator may require any purchaser of Restricted Stock to pay to
        the
        Company in cash upon demand amounts necessary to satisfy any applicable federal,
        state or local tax withholding requirements. If the purchaser fails to pay
        the
        amount demanded, the Administrator may withhold that amount from other amounts
        payable by the Company to the purchaser, including salary, subject to applicable
        law. With the consent of the Administrator in its discretion, a purchaser
        may
        deliver Common Stock to the Company to satisfy this withholding obligation.
        Upon
        the issuance of Restricted Stock, the number of shares reserved for issuance
        under the Plan shall be reduced by the number of shares issued. 

       

      8.1.3    If
        an
        award of Restricted Stock to a recipient is made by a Committee comprised
        solely
        of “outside directors” within the meaning of Section 162(m) of the Code, the
        Administrator shall have discretion to designate that the Restricted Stock
        is
        intended to be “performance-based compensation” within the meaning of Section
        162(m) of the Code and the regulations thereunder. If any award of Restricted
        Stock is intended to be “performance-based compensation,” then the lapsing of
        restrictions on the Restricted Stock and the payment of dividends and other
        distributions on the Restricted Stock shall be conditioned on the attainment
        of
        one or more objective performance goals established by the Administrator,
        which
        shall be based on the attainment of specified levels of one or any combination
        of the following performance criteria, applied to either the Company as a
        whole
        or to any of the Company’s subsidiaries or other business units, and measured
        either annually or over a period of years: revenues, operating margins, cost
        reductions, operating income, income before taxes, net income, net income
        per
        share, return on equity, return on invested capital, cash flow, market share,
        shareholder return, or share price performance. The Administrator shall set
        such
        performance goals within the time period prescribed by Section 162(m) of
        the
        Code and the regulations thereunder, and the Administrator shall have the
        authority to impose any other restrictions as it may deem necessary or
        appropriate to ensure that an award of Restricted Stock satisfies all
        requirements for “performance-based compensation” within the meaning of Section
        162(m) of the Code and the regulations thereunder. 

      

      8.2    Changes
        in Capital Structure. In the event of a change in the Company’s capital
        structure, as described in Section 6.1.1, appropriate adjustments shall be
        made
        by the Administrator, in its discretion, in the number and class of Restricted
        Stock subject to the Plan and the Restricted Stock outstanding under the
        Plan;
        provided, however, that the Company shall not be required to issue fractional
        shares as a result of any such adjustments.

      

      8.3    Corporate
        Transactions. In the event of a Corporate Transaction, as defined in Section
        6.1.2, to the extent not previously forfeited, all Restricted Stock shall
        be
        forfeited immediately prior to the consummation of the Corporate Transaction
        unless the Administrator determines otherwise in its discretion. The
        Administrator, in its discretion, may elect to remove any restrictions as
        to any
        Restricted Stock. The Administrator may, in its discretion, provide that
        all
        outstanding Restricted Stock participate in the Corporate Transaction with
        an
        equivalent stock substituted by an applicable successor corporation subject
        to
        the restrictions.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      9.    EMPLOYMENT
        OR CONSULTING RELATIONSHIP.

      

      Nothing
        in the Plan or in any Option or Restricted Stock granted or sold under the
        Plan
        shall interfere with or limit in any way the right of the Company or of any
        of
        its Affiliates to terminate the employment or consulting or advising
        relationship of any Option Holder or Restricted Stock holder at any time,
        nor
        confer upon any Option Holder or Restricted Stock holder any right to continue
        in the employ of, or to consult or advise with, the Company or any of its
        Affiliates.

      

      10.   CONDITIONS
        UPON THE ISSUANCE OF SHARES.

      

      10.1    Securities
        Act Compliance. Shares of Common Stock shall not be issued pursuant to the
        exercise of an Option or the receipt of a Restricted Stock award unless the
        Administrator determines that the exercise of the Option or receipt of the
        Restricted Stock and the issuance and delivery of such shares will comply
        with
        all relevant provisions of law, including, without limitation, the Securities
        Act of 1933, as amended, applicable state and foreign securities laws and
        the
        requirements of any stock exchange or Nasdaq market system upon which the
        Common
        Stock may be listed or quoted. The inability of the Company to obtain from
        any
        applicable regulatory body a permit, order or approval deemed by the
        Administrator to be necessary to the lawful issuance and sale of any shares
        of
        Common Stock under the Plan shall relieve the Company of any liability in
        respect of the failure to issue or sell such shares as to which such requisite
        permit, order or approval shall not have been obtained. As a condition to
        the
        exercise of any Option or to the receipt of any Restricted Stock, the
        Administrator may require the Option Holder or Restricted Stock recipient
        to
        satisfy any qualifications that may be necessary or appropriate, to evidence
        compliance with any applicable law or regulation and to make any representation
        or warranty with respect thereto as may be reasonably requested by the
        Administrator. 

      

      10.2    Shareholders’
        Agreement. As a further condition to the receipt of Common Stock pursuant
        to the
        exercise of an Option or to the receipt of Restricted Stock, the Option Holder
        or recipient of Restricted Stock may be required by the Administrator, in
        the
        Administrator’s discretion, to enter into a shareholders’ agreement with the
        Company which may restrict the transferability of the Common Stock and contain
        rights of repurchase or first refusal in favor of the Company.

      

      10.3    Non-Competition
        Agreement. As a condition to the receipt of Common Stock pursuant to the
        exercise of an Option or to the receipt of Restricted Stock, the Option Holder
        or recipient of Restricted Stock may be required not to render services for
        any
        organization, or to engage directly or indirectly in any business, competitive
        with the Company during any period that is specified in the Option Agreement
        or
        Restricted Stock Agreement. Failure to comply with this condition shall cause
        the Option and the exercise or issuance of shares thereunder and/or the award
        of
        Restricted Stock to be rescinded and the benefit of such exercise, issuance
        or
        award to be repaid to the Company.

      

      11.   NON-EXCLUSIVITY
        OF THE PLAN; ASSIGNMENT OF PLAN RIGHTS.

      

      11.1    The
        adoption of the Plan shall not be construed as creating any limitations on
        the
        power of the Company to adopt such other incentive arrangements as it may
        deem
        desirable, including, without limitation, the granting of stock options other
        than under the Plan.

      

      11.2    Except
        as
        otherwise expressly set forth in the Plan or in an Option Agreement or
        Restricted Stock Agreement executed pursuant to the Plan, no right or benefit
        under the Plan shall be subject in any manner to assignment, alienation,
        hypothecation or charge, and any such attempted action shall be void. No
        Option
        or Restricted Stock award shall in any manner be subject to the debts or
        liabilities of any Option Holder or Restricted Stock recipient except as
        otherwise may be expressly required by applicable law.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      12.   AMENDMENT
        OR TERMINATION OF THE PLAN.

      

      12.1    The
        Board
        may at any time amend, discontinue or terminate the Plan. If not earlier
        terminated, the Plan shall automatically terminate ten years after the date
        of
        its adoption by the Board. Except as provided in Section 6.1.2 or 8.3 with
        respect to a Corporate Transaction, termination of the Plan shall not affect
        the
        terms and conditions of any outstanding Options or previously awarded Restricted
        Stock. Without the consent of an Option Holder or recipient of Restricted
        Stock,
        no amendment or discontinuation of the Plan may adversely affect an outstanding
        Option or the terms applicable to Restricted Stock except to conform the
        Plan
        and Incentive Options granted under the Plan to the requirements of applicable
        tax and other laws relating to Incentive Options. 

      

      12.2    No
        amendment, discontinuation or termination of the Plan shall require shareholder
        approval unless (i) shareholder approval is required to preserve incentive
        stock
        option treatment for federal income tax purposes, (ii) shareholder approval
        is
        required under other applicable laws or under the regulations of any stock
        exchange or Nasdaq market system on which the Common Stock is listed or quoted,
        or (iii) the Board otherwise concludes that shareholder approval is advisable.
        

      

      12.3    All
        references in the Plan to statutes, rules and regulations shall be deemed
        to
        include any successor statutes, rules and regulations.

      

      13.    EFFECTIVE
        DATE OF THE PLAN.

      

      The
        Plan
        shall become effective upon adoption by the Board. However, no Option shall
        be
        exercisable and the restrictions on Restricted Stock shall not lapse unless
        and
        until the Plan is approved by the Company’s shareholders by written consent or
        at a validly held shareholders’ meeting within twelve months after adoption by
        the Board. If any Options or shares of Restricted Stock are so granted and
        shareholder approval shall not have been obtained within twelve months after
        the
        date of adoption of the Plan by the Board, such Options and Restricted Stock
        shall terminate retroactively as of the date they were awarded.Unassociated Document

    
      EXHIBIT
        4.2

       

      STOCK
        OPTION AGREEMENT

       

      This
        Stock Option Agreement (the “Agreement”)
        is
        entered into as of ______, 2005 by and between Arbios Systems, Inc., a Delaware
        corporation (the “Company”),
        and___________ (the “Option
        Holder”).

       

       

      NOTICE
        OF GRANT

       

      The
        undersigned Participant has been granted an Option to purchase $0.001 par
        value
        Common Stock of Arbios Systems, Inc., a Delaware corporation, (the “Company”)
        subject to the terms and conditions of the Plan and this Option Agreement,
        as
        follows: 

       

      
        	
                Participant:

              	
                ____________________

              
	 	 
	
                Date
                  of Grant:

              	
                ______,
                  2005

              
	 	 
	
                Exercise
                  Price per Share:

              	
                $_____

              
	 	 
	
                Total
                  Number of Shares Granted (“Shares”):

              	
                ______

              
	 	 
	
                Type
                  of Option:

              	
                Incentive
                  Qualified Stock Option 

              
	 	 
	
                Term/Expiration
                  Date:

              	
                ______,
                  201_

              
	 	 
	
                Vesting
                  Commencement Date:

              	
                ______,
                  2005

              
	 	 
	
                Stock
                  Option Number

              	
                __

              

      

      

      Vesting
        Schedule:

       

      This
        Option shall be exercisable, in whole or in part, with respect to the following
        number of Shares according to the following vesting schedule: the shares
        shall
        vest over a ______ month period with ____th
        vesting
        each month, so long as the Participant is still providing services to the
        Company (or any parent or subsidiary) as an employee, a non-employee member
        of
        the board of directors, or a consultant or independent advisor on such date.
        

       

       

      RECITALS

       

      A.    The
        Company has adopted the 2005 Stock Incentive Plan (the “Plan”).
        The
        Option Holder has had an opportunity to review the Plan. 

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      B.    The
        Option Holder is a director, officer and/or employee of the Company or of
        one of
        its subsidiaries and, therefore, is eligible to receive option grants under
        the
        Plan. This Agreement is intended by the parties to evidence the Company’s grant
        to the Option Holder of an option to purchase shares of its common
        stock.

       

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

       

      1.    Option
        Grant and Exercise Price.
        

       

      (a)    Effective
        as of the date set forth in the first paragraph of this Agreement, the Company
        hereby grants to the Option Holder the right and option (the “Option”)
        to
        purchase, on the terms and conditions set forth in this Agreement and in
        the
        Plan, _______________ (__,000) shares of its common stock, par value $0.001
        per
        share (“Common
        Stock”),
        at an
        exercise price of _________ Dollars ($____) per share. The Option exercise
        price
        is equal to or in excess of the fair market value of the Common Stock on
        the
        trading day preceding the Option grant date as determined in accordance with
        Section 6.1.9 of the Plan. 

       

      (b)    The
        Option is not intended by the Company and the Option Holder to be an incentive
        stock option within the meaning of Section 422 of the Internal Revenue Code
        of
        1986, as amended.

       

      2.    Vesting
        and Term of the Option.
        

       

      (a)    Option
        Vesting.
        Subject
        to the terms and conditions of this Agreement, the Option shall vest and
        become
        exercisable in twelve monthly installments. The vesting of this Option shall
        commence on ______, 2005, and shall continue on the same calendar day of
        each
        succeeding month provided that on such date the Option Holder is still providing
        services to the Company as an employee, a non-employee member of the Board
        of
        Directors, or as a consultant or advisor. At the end of each monthly
        installment, the Option Holder shall become entitled to purchase ___ thousand
        (_,000) shares of Common Stock that are covered by the Option. At the end
        of the
        _______ monthly installment, the Option shall fully vest and the Option Holder
        shall become entitled to purchase the ______ thousand (___000) shares of
        Common
        Stock that are covered by the Option. The Option Holder shall at no time
        be
        allowed to exercise the unvested portion of the Option.

       

      (b)    Option
        Term.
        Subject
        to the possibility of earlier termination as described in Section 2(c), the
        vested portion of the Option shall be exercisable in whole or in part prior
        to
        ______, 20__. The Option shall terminate on _______ 20__, and no portion
        of the
        Option may be exercised on or after ______, 20__.

       

      (c)    Early
        Option Termination.
        If for
        any reason the Option Holder ceases to be a director, officer or employee
        of the
        Company or of a subsidiary of the Company, any portion of the Option that
        has
        vested and is unexercised at the date of the termination of the Option Holder’s
        service may be exercised in whole or in part at any time within ninety days
        after the date of the Option Holder’s service termination but not thereafter,
        provided that the Option may in no event be exercised on or after the Option
        termination date described in Section 2(b). Any portion of the Option that
        has
        not vested as of the date that the Option Holder’s service terminates shall
        cease to vest and shall at no time be exercisable by the Option Holder. The
        Option is also subject to early termination upon the occurrence of a “Corporate
        Transaction” that is described in Section 6.1.2 of the Plan. 

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      (d)    Shareholder
        Approval Required.
        Notwithstanding anything to the contrary in this Agreement, no portion of
        the
        Option shall become exercisable unless and until the Company’s shareholders have
        approved the Plan. 

       

      3.    Manner
        of Exercising the Option.
        The
        Option Holder may exercise the vested portion of the Option in whole or in
        part
        prior to the Option’s termination, provided that a partial exercise of the
        Option may not be for fewer than one hundred (100) shares of Common Stock
        unless
        fewer than one hundred (100) shares subject to the vested portion of the
        Option
        remain unexercised, in which event the entire remaining vested portion of
        the
        Option must be exercised at one time. The Option shall not be exercisable
        with
        respect to a fraction of a share of Common Stock. The Option Holder may exercise
        the vested portion of the Option, in whole or in part, by delivering to the
        Company's Chief Financial Officer written notice of exercise in the form
        of the
        notice attached to this Agreement. Such notice shall specify the number of
        shares of Common Stock to be purchased and shall be accompanied by payment
        of
        the purchase price of the shares. No shares shall be issued by the Company
        until
        full payment of the purchase price has been made. 

       

      4.    Payment
        of the Option Exercise Price.
        Unless
        the Company’s Board of Directors (the “Board”)
        elects
        in its discretion to allow one of the alternative methods of payment described
        in Section 6.1.6 of the Plan (including, without limitation, a so-called
        cashless Option exercise conducted through a broker), payment of the exercise
        price of the shares of Common Stock subject to the exercised portion of the
        Option shall be made by the Option Holder’s delivery to the Company of a check
        payable to the order of the Company. As provided in Section 6.1.7 of the
        Plan,
        the Company has the right to require the Option Holder to satisfy any applicable
        withholding obligations at the time of the exercise of the Option. 

       

      5.    Transferability
        of the Option.  

       

      (a)    Except
        as
        provided in this Section 5, the Option Holder may not assign or otherwise
        transfer the Option, either voluntarily or by operation of law, other than
        by
        will or the laws of descent and distribution, and the Option shall be
        exercisable during the Option Holder’s lifetime only by the Option Holder or by
        the Option Holder’s legal representative. Following the death of the Option
        Holder, the Option shall be exercisable by the Option Holder’s legal
        representative, executor and beneficiaries. 

       

      (b)    The
        Option Holder may assign and transfer part or all of the Option to a family
        member or family trust during the Option Holder’s lifetime but only if: (i) the
        transfer is made by a gift and not for consideration; (ii) the transferee
        is a
“family member” (including, without limitation, a family trust) as defined in
        General Instruction A.1(a)(5) of Form S-8 under the Securities Act of 1933,
        as
        amended (the “Securities
        Act”);
        (iii)
        the Option Holder gives the Company at least ten days’ prior written notice of
        the proposed transfer; and (iv) the transferee executes and delivers to the
        Company any documents requested by the Company (including, without limitation,
        a
        counterpart of this Agreement) in order to document the transfer. Any such
        transferee of all or part of the Option shall be bound by all of the terms
        and
        conditions of the Plan and this Agreement, and the Option Holder shall be
        personally liable to the Company for any breach by the transferee of any
        of the
        terms of the Plan or this Agreement. 

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      6.    Securities
        Law Compliance.  As
        provided in Section 10.1 of the Plan, no shares of Common Stock shall be
        issued
        or delivered upon exercise of the Option unless and until the Board determines
        that the exercise of the Option and the issuance and delivery of such shares
        pursuant thereto will comply with all relevant provisions of law, including,
        without limitation, the Securities Act, applicable state and foreign securities
        laws and the requirements of any stock exchange, Nasdaq market system, or
        over-the-counter trading system upon which the Common Stock may be
        listed.

       

      7.    Incorporation
        by Reference of the Plan.  The
        Plan
        and all of its terms and conditions, as amended from time to time, are
        incorporated by reference into this Agreement. The Option Holder acknowledges
        that he or she has received and reviewed a copy of the Plan. This Agreement
        is
        not a complete restatement of all of the terms and conditions of the Plan.
        The
        Company and the Option Holder agree to be bound by the Plan, as amended from
        time to time, and agree that the terms and conditions of the Plan shall govern
        if and to the extent that there are any inconsistencies between the Plan
        and
        this Agreement. If the Plan is administered by a committee as permitted by
        Section 4.1 of the Plan, references in this Agreement to the Board shall,
        as
        appropriate, apply instead to such committee. 

       

      8.    Option
        Holder’s Representations and Warranties.  In
        connection with the receipt of the Option pursuant to this Agreement and
        in
        contemplation of the Option Holder’s purchase of shares of Common Stock upon
        exercise of the Option, the Option Holder hereby agrees, represents and warrants
        as follows; provided that all of the following agreements, representations
        and
        warranties shall be deemed to have been given again by the Option Holder
        as of
        the date that he or she exercises the Option:

       

      (a)    Access
        to Information.
        The
        Option Holder has had a sufficient opportunity to review (i) the Plan, (ii)
        the
        Prospectus that the Company has distributed regarding the Plan, and (iii)
        all
        registration statements, annual and periodic reports and proxy and information
        statements that the Company has filed with the Securities and Exchange
        Commission (the “SEC”)
        during
        the preceding twelve months. Neither the Company nor any of its officers,
        directors, employees or other agents has made any representation or
        recommendation to the Option Holder about the advisability of the Option
        Holder’s purchase of the shares of Common Stock that are subject to the Option.
        

       

      (b)    Ability
        to Bear Investment Risk.
        The
        Option Holder is aware that any purchase of stock involves an element of
        risk.
        The Option Holder can afford to bear the risks of an investment in the Company.
        The Option Holder has sufficient knowledge and experience in financial and
        investment matters to enable him or her to evaluate the merits and risks
        of the
        proposed purchase of the shares of Common Stock subject to the Option and
        to
        make an informed investment decision. The Option Holder has had a sufficient
        opportunity to consult with his or her advisers about the merits and legal
        implications of the proposed transaction. 

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      (c)    Resale
        Restrictions.
        The
        Option Holder understands that: (i) neither the SEC nor any state or other
        regulatory authority has made any recommendation or finding concerning the
        value
        of the shares of Common Stock subject to the Option; and (ii) the shares
        may be
        offered, sold or otherwise transferred by the Option Holder only if the
        transaction is registered and qualified under the applicable provisions of
        federal and state securities laws or if exemptions from such registration
        and
        qualification are available. The Option Holder agrees not to sell, pledge
        or
        otherwise transfer any of the shares of Common Stock acquired upon exercise
        of
        the Option except in full compliance with all applicable federal and state
        securities laws, rules and regulations.

       

      (d)    Applicability
        to Transferees.
        If the
        Option Holder transfers part or all of the Option to a family member or family
        trust pursuant to Section 5(b), the transferee shall be deemed to have made
        all
        of the representations, warranties and agreements that are set forth in this
        Section 8, and the Option Holder shall be personally liable to the Company
        for
        any and all losses, damages, expenses and liabilities (including, but not
        limited to, court costs and reasonable attorneys' fees) that the Company
        may
        incur as a result of any breach of such representations, warranties and
        agreements by the transferee. 

       

      (e)    No
        Continuing Employment Right.
        The
        Option Holder understands that nothing in the Plan or this Agreement gives
        the
        Option Holder a right to continue in the employment of the Company or a
        subsidiary and that, if the Option Holder is a director, nothing in the Plan
        or
        this Agreement gives the Option Holder a right to continue to serve as a
        director of the Company. 

       

      9.    Miscellaneous
        Provisions.

       

      (a)    Further
        Instruments.  The
        Company and the Option Holder agree to execute such further instruments and
        to
        take such further actions as may be reasonably necessary to carry out the
        intent
        of this Agreement.

       

      (b)    Provisions
        Subject to Applicable Law.  If
        any provision of this Agreement is held by an arbitrator or a court of competent
        jurisdiction to be invalid, void or unenforceable, the remaining provisions
        shall nevertheless continue in full force and effect without being impaired
        or
        invalidated in any way and shall be construed in accordance with the purposes
        and intent of this Agreement.

       

      (c)    Complete
        Agreement.  This
        Agreement and the Plan constitute the complete and exclusive agreement between
        the Company and the Option Holder with respect to the subject matter herein
        and
        replace and supersede any and all other prior written and oral agreements
        or
        statements by the parties relating to such subject matter.

       

      (d)    Successors
        and Assigns.  Subject
        to the provisions of this Agreement and the Plan relating to the transferability
        of the Option and the shares of Common Stock acquired upon exercise of the
        Option, this Agreement shall be binding upon and inure to the benefit of
        the
        Company and the Option Holder and their respective successors and assigns.
        Whenever appropriate in this Agreement, references to the Company or the
        Option
        Holder shall be deemed to refer to such person’s legal representative, estate or
        other transferees, successors or assigns, as applicable. 

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      (e)    Notices.  Any
        notice required or permitted to be given to the Company or the Option Holder
        must be in writing and personally delivered or sent by registered or certified
        United States mail (postage prepaid and return receipt requested), by overnight
        delivery service or by facsimile transmission, addressed to the address
        hereinafter shown below such party’s signature or to such other address as the
        party may designate in the foregoing manner to the other party. Any such
        notice
        that is sent by the Company or the Option Holder in the foregoing manner
        shall
        be deemed to have been delivered upon (i) personal delivery, (ii) actual
        receipt
        by facsimile transmission, (iii) three days after deposit in the United States
        mail, or (iv) one day after delivery to an overnight delivery
        service.

       

      (f)    Amendment
        and Termination.  This
        Agreement may be amended or terminated only by a writing executed by both
        the
        Company and the Option Holder.

       

      (g)    Counterparts.  This
        Agreement may be executed by facsimile and in two counterparts, each of which
        shall be deemed an original, but both of which shall constitute one and the
        same
        instrument.

       

      (h)    Governing
        Law.
        This
        Agreement shall be governed by, and construed and enforced in accordance
        with,
        the internal laws of the State of California without giving effect to such
        state’s conflict-of-law principles.

       

      [signature
        page follows]

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      IN
        WITNESS WHEREOF, the Company and the Option Holder have executed and delivered
        this Agreement as of the day and year first written above.

       

      
        	 	
                ARBIOS
                  SYSTEMS, INC.

              
	 	
                By:
                  ________________________________

                 

                Name:______________________________

                 

                Title: Chief
                  Executive Officer

              
	 	
                 

                Address:

                8797
                  Beverly Boulevard, #304

                Los
                  Angeles, CA 90048

                Attention:
                  Chief Financial Officer

                Fax:
                  (310) 657-4879

              
	 	
                 

                ____________________________________

                 

              
	 	
                Address:

                ____________________________________

                 

                ____________________________________

                 

                Fax:
                  ________________

              

      

      

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

          
          

        

      

      OPTION
        EXERCISE NOTICE

       

      Arbios
        Systems, Inc. 

      8797
        Beverly Boulevard, #304

      Los
        Angeles, CA 90048

      Attention:
        Chief Financial Officer

       

      I
        hereby
        notify Arbios Systems, Inc. (the "Company")
        of my
        election to purchase _____ shares of the Company's common stock at a purchase
        price of $______ per share pursuant to an option that was granted under the
        Stock Option Agreement dated as of _________________ (the "Agreement")
        between the Company and _____________________. 

       

      If
        the
        Option Holder named above assigned part or all of the option to a family
        member
        or family trust pursuant to Section 5(b) of the Agreement, this Option Exercise
        Notice is being executed by the transferee instead of the Option Holder.
        

       

      Concurrently
        with the delivery to the Company of this notice, I have delivered to the
        Company
        the purchase price of the shares in the manner provided in the Agreement.
        

       

      I
        agree
        to execute whatever additional documents are requested by the Company in
        order
        to complete the exercise of my option. All of the representations and warranties
        that I made in Section 8 of the Agreement remain accurate as of the date
        of this
        notice.

       

      
        	
                Dated:
                  _________________

              	
                _____________________________

                Signature

              
	 	
                _____________________________

                Print
                  Name

              
	 	 

      

      

      
        
          
          

        

        
          8

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00090-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00090-of-00352.parquet"}]]