Document:

Unassociated Document

    Exhibit
      10.1

    

    Portions
      of this Exhibit were omitted and have been filed separately with the Secretary
      of the Commission pursuant 

    to
      the Company’s application requesting confidential treatment under Rule 406
      of the Securities Act

    

    SUPPLY
      AGREEMENT

    

    This
      Supply Agreement (“Agreement”)
      is
      made and entered into as of the 14th day of September, 2007 (the “Effective
      Date”), by and between Membrana
      GmbH, a
      company
      organized under the laws of Germany (hereinafter called “Membrana”),
      and
Arbios
      Systems, Inc.
      a
      corporation organized under the laws of Delaware (hereinafter called
“Arbios”).
      The
      parties agree as follows:

    

    1. Definitions. As
      used
      herein the following terms shall have the following meanings:

    

    “Affiliate”
shall
      mean any person or entity controlling, controlled by or under common control
      with the party in question.

    

    “Product”
      or “Products”
      shall
      mean Membrana’s products listed on Exhibit
      A.

    

    “Specifications”
      shall
      mean the fiber and bundle specifications for the Products set forth on
Exhibit
      B
      as
      amended from time to time by Arbios with the reasonable consent of Membrana.
      Each party shall bear its own costs with respect to any developmental activity
      undertaken to arrive at modified Specifications. Arbios acknowledges that
      changes to the Specifications proposed by it may result in higher
      prices.

    

    2. Purchase
      Commitments. 

    

    2.1 From
      the
      Sale Date (as defined below) until [***] as further provided herein (the
“Exclusive
      Period”),
      Arbios agrees to purchase no less than [***] of its total commercial
      requirements for membranes for use in products covered within a claim of an
      issued U.S. patent that is owned by or licensed exclusively to Arbios (as listed
      on Exhibit
      C)
      for the
      treatment of liver failure or sepsis anywhere in the world (the “Exclusive
      Field”)
      from
      Membrana up to [***] kilometers per year (the “Requirements
      Cap”).
      Provided that Arbios shall have ordered at least [***] km (cumulative) of
      Product during the Exclusive Period and prior to [***] of the Sale Date, the
      Exclusive Period shall be extended for [***] Provided that Arbios shall have
      ordered at least [***] km (incremental) of Product prior to [***] of the Sale
      Date, the Exclusive Period shall be extended for [***]. Provided that Arbios
      shall have ordered at least [***] km (incremental) of Product prior to [***]
      of
      the Sale Date, the Exclusive Period shall be extended for [***]. Amounts in
      excess of the Requirements Cap or for use outside of the Exclusive Field may
      be
      available upon Membrana’s written approval. If Membrana declines to supply
      volumes in excess of the Requirements Cap, Arbios may acquire such volumes
      in
      the Exclusive Field from third parties. Upon the expiration of the Exclusive
      Period or upon conversion of this Agreement to a non-exclusive agreement as
      expressly permitted by this Agreement, Arbios may continue to purchase Products
      from Membrana until end of the term described in Section 4.1 below, however,
      Arbios may also purchase membranes for use in the Exclusive Field from third
      parties. If Arbios does not place an order with Membrana for Products within
      [***]months of the end of the Exclusive Period and does not order at least
      [***]
      km of Product within any [***]months period after the end of the Exclusive
      Period, Membrana may elect to terminate this Agreement effective fifteen (15)
      days following written notice to Arbios of such desired termination, unless
      Arbios places an order for at least [***] km of Product within such notice
      period for delivery within thirty (30) days of the order. Commencing in the
      third year of the Exclusive Period, Membrana may review Arbios’ purchases over
      the first [***] months of each year and if it is reasonably certain that Arbios
      will not achieve the minimum for that year, Membrana may provide Arbios with
      written notice of its intent to terminate the Exclusive Period for failure
      to
      meet the minimum. If within thirty (30) days of such notice Arbios has not
      provided to Membrana reasonable assurances of its ability and intent to
      place orders sufficient to maintain exclusivity, Membrana may on notice
      to Arbios terminate the Exclusive Period, however if Arbios shall have
      met the minimum by the end of that same year, the Exclusive Period may be
      reinstated upon mutual agreement of the parties. Should Membrana terminate
      the
      Exclusive Period early under the immediately preceding provision, Arbios may
      at
      any time within [***]months thereafter terminate this Agreement on one year's
      notice to Membrana. Three (3) months before the end of each calendar year Arbios
      and Membrana will meet and discuss previous sales volumes, market trends and
      share sales forecasts for the next calendar year and prospective sales
      development in the next three (3) years.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

      
         

        Portions
          of this Exhibit were omitted and have been filed separately with the Secretary
          of the Commission pursuant 

        to
          the Company’s application requesting confidential treatment under Rule 406
          of the Securities Act

      

       

    

    2.2 During
      the Exclusive Period, Arbios agrees to apportion its orders and requested
      delivery dates as much as reasonably possible so that Arbios purchases
      approximately one-fourth of its annual requirements over each three month
      period. The minimum order size shall be [***] km of Product.

    

    3. Third
      Party Sales.
      During
      the Exclusive Period, Membrana shall not knowingly commercialize or supply
      the
      Products specified by this Agreement or membranes with specifications that
      are
      substantially similar to the Specifications hereunder for use in the Exclusive
      Field to any third party that will incorporate such membranes into a product
      whose composition, method of manufacture or method of use falls within a claim
      of an issued U.S. patent that is owned by or licensed exclusively to Arbios
      (as
      listed on Exhibit
      C)
      anywhere in the world unless such product is licensed by Arbios to the third
      party for the relevant use in the relevant jurisdiction. The patents that are
      owned by or licensed exclusively to Arbios are listed on Exhibit
      C
      hereto.
      During the term of this Agreement, Exhibit
      C
      may be
      updated with newly issued or licensed patents in writing from time to time
      by
      Arbios. In addition, Membrana shall be permitted to develop and test
      independently of Arbios, membranes for application in the Exclusive Field during
      the Exclusive Period, provided that in no event and at no time shall any Arbios
      Confidential Information or intellectual property be used by Membrana other
      than
      for the purpose of manufacturing and supplying Products for Arbios hereunder.
      Each party shall notify the other party of any potentially infringing products
      of which it becomes aware. For the avoidance of doubt, nothing in this Agreement
      shall restrict either party’s activities outside the Exclusive
      Field.

    

    4. Term;
      Termination. 

    

    4.1 The
      term
      of this Agreement shall commence upon the Effective Date and, unless otherwise
      terminated as provided herein, shall continue until the sixth anniversary of
      the
      Sale Date, where the “Sale Date” shall be the date of first sale by Arbios to a
      third party of a device containing Product for use in the Exclusive Field or,
      if
      earlier, three months following the date of CE mark approval of such a device
      for Europe (or any other similar registration in any other jurisdiction with
      population of at least 250 million persons by a regulatory authority, whichever
      is given earliest). Arbios shall confirm the first such sale date or date on
      which the first such registration is received to Membrana in writing with the
      relevant documents attached. If the Sale Date does not occur by December 31,
      2009, Membrana shall have the right to terminate this Agreement upon fifteen
      (15) days written notice.

    

    4.2 This
      Agreement may be terminated by a party hereto on 90 days’ prior written notice
      if the other party commits a material breach and does not cure such breach
      within the 90-day notice period, or on 60 days’ prior written notice in the
      event that the other party becomes or is adjudged insolvent, makes an assignment
      for the benefit of its creditors, has a petition filed in bankruptcy for or
      against it or goes into liquidation (except for the purposes of a bona fide
      amalgamation or other reorganization) or a receiver is appointed over all or
      a
      major part of the property or assets of that other party and such condition
      is
      not removed during such 60-day notice period. 

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

      
        Portions
          of this Exhibit were omitted and have been filed separately with the Secretary
          of the Commission pursuant 

        to
          the Company’s application requesting confidential treatment under Rule 406
          of the Securities Act

         

      

    

    4.3 In
      addition to any other remedies available under this Agreement, Arbios shall
      be
      entitled in its sole discretion to either terminate this Agreement or to convert
      this Agreement to a non-exclusive agreement upon sixty (60) days notice given
      in
      writing to Membrana if:

    

    
      	4.3.1  	
              the
                regulatory status of Membrana’s facility is such that manufacture in
                accordance with the warranty set forth in Section 11.1.1 and/or in
                accordance with agreed delivery times is not
                possible;

            

    

    
      	4.3.2  	
              more
                than [***] ([***]) consecutive shipments of Product contain in excess
                of
                [***]% of Product that fails to meet the warranty specified in Section
                11.1.1;

            

    

    
      	4.3.3  	
              Subject
                to Section 7 below, Membrana fails to ship at least [***] percent
                ([***]%)
                of the quantity of Product to be delivered within any [***] ([***])
                day
                period as provided in acknowledged purchase orders any [***] ([***])
                times
                during the term of this Agreement;

            

    

    
      	4.3.4  	
              Subject
                to Section 7 below, Membrana is late on confirmed shipment dates
                by [***]
                days or more any [***] ([***]) times during the term of this Agreement
                provided that Membrana receives a binding purchase order from Arbios
                at
                least twelve (12) weeks before the requested shipment date and Arbios
                is
                in compliance with Section 6.1; or

            

    

    
      	4.3.5  	
              Membrana
                seeks to excuse performance hereunder due to Force Majeure for a
                period of
                more than ninety (90) days.

            

    

    

    4.4 In
      addition to any other remedies available under this Agreement, Arbios shall
      be
      entitled in its sole discretion to convert this Agreement to a non-exclusive
      arrangement upon sixty (60) days notice given in writing to Membrana if, subject
      to Section 7 below Membrana is late on confirmed shipment dates by [***] days
      or
      more [***] ([***]) consecutive times during the term of this Agreement provided
      that Membrana receives a binding purchase order from Arbios at least twelve
      (12)
      weeks before the requested shipment date and Arbios is in compliance with
      Section 6.1.

    

    5. Prices;
      Delivery Terms. 

    

    5.1 Initial
      Product prices for single order volumes of up to [***] km of Product are set
      forth on Exhibit
      D
      (the
“Base
      Prices”).
      Surcharges may apply for special delivery requests and changes in bundle
      configuration or other Specifications. Prices for single order volumes of
      greater than [***] km of Product shall be negotiated between the parties. If,
      during the term of this Agreement, changes occur in one or more factors
      impacting Membrana’s price calculation, such as costs of materials, freight,
      exchange rates, energy and governmental actions, Membrana shall be entitled
      to
      increase the Base Prices accordingly as follows: (i) if the event giving rise
      to
      the price change occurs between July 1 and December 31, upon the later to occur
      of sixty (60) days’ prior written notice to Arbios and the next January 1; or
      (ii) if the event giving rise to the price change occurs between January 1
      and
      June 30, upon the later to occur of sixty (60) days’ prior written notice to
      Arbios and such June 30, specifying in reasonable detail the reason for the
      change in price; provided that such price increases may only occur [***] per
      calendar year and in no event shall the resulting prices exceed the Base Prices
      multiplied by [***] ([***]) plus the cumulative percentage change in the German
      Consumer Price Index (GCPI) from the Effective Date to the date of the relevant
      increase. Arbios will be deemed to accept any such price increase unless it
      informs Membrana in writing within 15 days after receipt of the notice that
      it
      will not pay the higher price, in which case Membrana may elect to continue
      to
      fill orders after the expiration of the required notice period at the old price
      or terminate this Agreement as of the expiration of the required notice period.
      Neither party shall be entitled to direct or indirect damages as a result of
      any
      such termination. 

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

      
         

        Portions
          of this Exhibit were omitted and have been filed separately with the Secretary
          of the Commission pursuant 

        to
          the Company’s application requesting confidential treatment under Rule 406
          of the Securities Act

         

        5.2 Prices
          and terms of delivery are FCA Membrana’s manufacturing facility in Wuppertal,
          Germany (Incoterms 2000). Title and risk of loss shall pass to Arbios upon
          shipment of the Products.

      

    

    

    5.3 Arbios
      shall have sixty (60) days to inspect the Products after their receipt. Arbios
      shall notify Membrana in writing of any claims for non-conforming Products
      within such inspection period. Arbios shall provide Membrana with a sample
      of
      the claimed non-conforming Product to allow Membrana to test the Product and
      determine whether it is non-conforming. If it is determined by agreement of
      the
      parties (or in the absence of agreement of the parties by a mutually acceptable
      independent testing laboratory or consultant whose fees shall be paid by the
      non-prevailing party) that the non-conformity is due to damage to the Product
      (i) caused by Arbios or its agents or (ii) which occurs subsequent to delivery
      of such Product to the carrier at Membrana’s facility, Membrana shall have no
      liability to Arbios with respect thereto. If the non-conformity is caused by
      a
      breach by Membrana of the warranty set forth in Section 11.1.1 below, Membrana
      shall at Membrana’s option, (i) pay Arbios the amount of the price paid by
      Arbios for such non-conforming Product, (ii) offset the amount paid by Arbios
      for such non-conforming Product against other amounts then due Membrana
      hereunder or (iii) replace such non-conforming Product with conforming Product
      at no additional cost to Arbios. Subject to Section 6.2, any claims with respect
      to non-conforming Product not made within the 60 day inspection period shall
      be
      deemed waived. Except as set forth in Sections 6.2 and 11.1.3(b) below, the
      foregoing shall be Arbios’ sole remedy for breach of the warranty.

    

    6. Payment
      Terms. 

    

    6.1 [***]
      percent ([***]%) of the total invoice price is due and payable within 30 days
      of
      receipt of an order confirmation.
      Production
      on confirmed orders shall commence upon receipt of this first payment. The
      remaining [***]% of the invoice price is due and payable per shipment but based
      on the effective price for the total purchase order within 30 days of receipt
      of
      the relevant shipment. For any amounts not paid when due, Membrana may apply
      interest at a rate of 1% per month from the date due until the date paid.
      Shipments that are shipped to Arbios more than ten days after the shipment
      date
      acknowledged by Membrana upon confirmation of the relevant purchase order may
      be
      accepted by Arbios at its discretion, subject to a penalty of [***]% of the
      relevant invoice price, which penalty shall only apply if Arbios is current
      on
      its payments at the time the relevant shipment is accepted by Arbios. Any such
      late shipments, if accepted by Arbios at the reduced price, shall not count
      towards the early termination rights set forth in Section 4 above. Duty, sales,
      use or excise taxes imposed by any governmental entity that apply to the
      manufacture of Product hereunder will be borne by Arbios (other than taxes
      based
      upon the income of Membrana).

    

    6.2 Arbios
      shall be entitled to receive a credit against amounts due hereunder for membrane
      scrap rates which exceed an annual average of [***]% ([***]% if annual purchase
      volumes exceed [***] km) of any shipment due solely to membranes that are
      outside the Specifications as determined using mutually agreed fiber integrity
      tests. Such scrap rates shall be reported to Membrana at least quarterly. By
      January 30 of each year, the parties will review the quarterly scrap rates
      of
      the previous year in order to determine the annual average. Without limiting
      the
      terms of this Agreement, including without limitation Section 6.2 the parties
      agree to share adverse product yield impacts as measured by Arbios fiber leak
      rate in Arbios filter manufacturing plant, as follows: Membrana will credit
      Arbios 1.30 times the invoice price of Membrane bundles rejected over an annual
      average of [***]% ([***]% if annual purchase volumes exceed [***] km) of
      membrane bundles incorporated by Arbios in devices in a calendar month if such
      fiber leaks are proven to be present in the membranes as shipped by Membrana.
      Arbios will supply Membrana with regular leak rate updates and whenever a leak
      rate of over an annual average of [***]% ([***]% if annual purchase volumes
      exceed [***] km) is reached, Membrana may request samples of defective bundles
      prior to payment of a leak rate claim to confirm the accuracy of the claim
      and
      to assist in investigations. Any payments to be made pursuant to the foregoing
      paragraph shall be calculated and made quarterly at the end of each calendar
      quarter. For the avoidance of doubt, this Section is not intended to cover
      fiber
      leaks incorporated in finished devices that are approved for commercial sale
      by
      Arbios’ quality assurance department.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

      
        Portions
          of this Exhibit were omitted and have been filed separately with the Secretary
          of the Commission pursuant 

        to
          the Company’s application requesting confidential treatment under Rule 406
          of the Securities Act

         

      

    

    6.3 Membrana
      may reasonably adjust the payment terms if the creditworthiness of Arbios
      changes in Membrana’s reasonable discretion.

    

    7. Forecasts
      and Orders. 
      Arbios
      shall submit to Membrana a non-binding good faith annual forecast by September
      15th
      of each
      year of its membrane needs for the following calendar year. Arbios shall also
      submit to Membrana a non-binding rolling six-month forecast updated once per
      quarter. Membrana shall promptly notify Arbios in writing if at any time
      Membrana has reason to believe that it will be unable to supply the amounts
      forecasted by Arbios within the timeframes specified in the relevant forecast.
      Binding purchase orders must be placed no later than twelve weeks in advance
      of
      the first desired ship date recited in such purchase order. Membrana shall
      confirm whether it will supply Products consistent with all purchase orders
      placed in accordance with the terms of this Agreement within ten business days
      of receipt. For all confirmed orders, Membrana will produce and ship Product
      consistent with each amount and within fifteen days of the order ship date
      stated in the order acknowledgement provided that any delay due to the late
      receipt of the first half of the invoice price shall be excluded from the
      foregoing provision. Pricing for each order shall be determined by corresponding
      the total purchase order size to the volumes indicated in the pricing bracket
      on
Exhibit
      D.
      

    

    8. Confidentiality . The
      term
“Confidential
      Information”
means
      any and all confidential information, know-how, data, specifications, formulae,
      techniques, prices, processes and business information concerning the Products
      or either party’s business, including the existence of this Agreement and its
      terms and conditions. Membrana and Arbios agree not to use Confidential
      Information of the other party for any purpose other than for the purpose of
      this Agreement and will not disclose the other party’s Confidential Information
      to third parties. This restriction will survive termination of this Agreement.
      

    

    The
      obligations with respect to Confidential Information as provided above shall
      not
      apply to any Confidential Information of the other party which:

    

    (a) is
      or
      becomes known to the public through no fault of the receiving party
      hereunder;

    (b) is
      known
      to the receiving party prior to its receipt from the disclosing
      party;

    (c) becomes
      known to the receiving party through disclosure by a third party who has a
      lawful right to disclose such information on a non-confidential basis;
      or

    (d) is
      independently developed by the receiving party without reference to or use
      of
      the disclosed information.

    

    

    9.  Cooperation.

    

    9.1 Arbios
      will be responsible for obtaining, at its expense, all regulatory and
      governmental approvals and permits necessary for Arbios’ use of any Product
      manufactured under this Agreement or sale of any resulting Arbios product.
      Membrana will reasonably cooperate with Arbios, at Arbios’ expense, in efforts
      to obtain regulatory approvals and shall permit representatives of any
      regulatory agency having jurisdiction over the manufacture or marketing of
      Arbios products made using Product to inspect its facilities as reasonably
      required. 

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

      
        Portions
          of this Exhibit were omitted and have been filed separately with the Secretary
          of the Commission pursuant 

        to
          the Company’s application requesting confidential treatment under Rule 406
          of the Securities Act

         

      

    

    9.2  For
      regulatory compliance purposes, Arbios has been provided with a list of
      substantial raw materials used in the manufacture of the Product as of the
      Effective Date. Arbios shall be promptly notified in writing of any material
      change in any raw materials which occurs after the Effective Date. Membrana
      agrees to provide directly to a governmental regulatory agency governing Arbios’
products (a “Governmental
      Authority”),
      any
      information requested by such agency.

     

    9.3  If
      a
      change in Specifications is required by a Governmental Authority or in order
      to
      address other reasonable safety or marketability issues as are disclosed to
      Membrana, the parties will work together in good faith to qualify membranes
      with
      alternate specifications that will meet the approval of the Governmental
      Authority or such other requirements. In the event that, within ninety (90)
      days
      of any notice by Arbios of such a required change and the reasons therefor,
      the
      parties, despite good faith negotiations, cannot agree on terms for the supply
      of such alternate membranes on terms and conditions reasonably similar to those
      specified herein it being understood that changes in Specifications may require
      changes in price, Arbios shall have the right to terminate this Agreement on
      at
      least sixty (60) days prior written notice to Membrana; provided that following
      any such termination, Arbios shall not be permitted to purchase membranes
      meeting any previously agreed Specifications from any third party for use in
      the
      Exclusive Field.

     

    9.4  Arbios
      shall co-brand any products it sells containing the Products with Membrana’s
      name pursuant to this Section 9.4. Arbios shall include language pre-approved
      by
      Membrana, such approval to not be unreasonably withheld or delayed, on product
      labels, brochures, publications and other promotional materials indicating
      that
      Membrana’s membranes are incorporated in Arbios’ products.

    

     

    10.  Notices.Notices,
      demands and communications hereunder to Arbios or to Membrana shall be deemed
      to
      have been duly given if in writing and delivered by overnight delivery service
      or sent by registered or certified mail (postage prepaid) or by facsimile
      (confirmed by delivery of the notice by mail or overnight delivery service)
      as
      follows:

    

    If
      to
      Membrana: Membrana
      GmbH

    Öhder
      Straße 28 

    D-42289
      Wuppertal, Germany

    Attention:
      Dr. Tamara Kunert-Latus

    Telephone:
      +49 (0) 202 6099 527

    Fax:
      +49
      (0) 202 6070 296

    

    with
      a
      copy to: Polypore
      International, Inc.

    11430
      North Community House Road

    Suite
      350

    Charlotte,
      NC 28277

    Attn:
      General Counsel

    

    If
      to
      Arbios: Arbios
      Systems, Inc. 

    1050
      Winter Street, Suite 1000

    Waltham,
      MA 02451 

    Attention:
      Shawn Cain

    Telephone:
      1-781-839-7292

    Facsimile:
      1-781-839-7295

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

      
        Portions
          of this Exhibit were omitted and have been filed separately with the Secretary
          of the Commission pursuant 

        to
          the Company’s application requesting confidential treatment under Rule 406
          of the Securities Act

         

      

    

    Any
      party
      may designate by notice in writing a new notice address.

    

    11. General.

    

    11.1 Warranties;
      Claims; Limited Remedies.
      

    

    
      	
              11.1.1

            	
              Membrana
                warrants that the Products shall meet the Specifications and shall
                be
                manufactured in accordance with applicable ISO standards and all
                applicable laws and regulations. THE
                FOREGOING IS THE SOLE WARRANTY APPLICABLE TO THE PRODUCTS. MEMBRANA
                MAKES
                NO WARRANTIES, WHETHER EXPRESS OR IMPLIED INCLUDING WARRANTIES OF
                MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OTHER THAN THE
                WARRANTY SET FORTH IN THIS SECTION 11.1.
                

            

    

     

    
      	
              11.1.2

            	
              Except
                as set forth in Section 11.1.3, neither party shall be liable for
                indirect, special, punitive or consequential damages including business
                interruption damages related to this Agreement regardless of the
                nature of
                the claim or theory of recovery.

            

    

    

    
      	
              11.1.3

            	
              (a)
                Arbios shall indemnify, defend and hold harmless Membrana, its Affiliates
                and their respective officers, directors, employees and agents
                (“Membrana
                Indemnified Parties”)
                against any losses, costs or other damages, including reasonable
                attorneys’ fees, arising from third party claims to the extent related to
                (i) a breach of this Agreement by Arbios, (ii) the incorporation
                of
                Products into Arbios’ products, other than as covered by Section
                11.1.3(b)(ii) below , and/or (iii) claims that Arbios’ products infringe
                on the intellectual property of a third party, other than as covered
                by
                Section 11.1.3(b)(iii) below.

            

    

    
      	 	 

    

    
      	 	(b) Membrana shall indemnify, defend and hold harmless
              Arbios, its Affiliates and their respective officers, directors, employees
              and agents (together with Membrana Indemnified Parties, the “Indemnified
              Parties”)
              against any losses, costs or other damages, including reasonable
              attorneys’ fees, arising from third party claims to the extent related to
              (i) a breach of this Agreement by Membrana, (ii) Products supplied
              to
              Arbios that do not conform with the warranty set forth in Section 11.1.1
              and/or (iii) claims that the Products as sold to Arbios or the manufacture
              of such Products infringe on the intellectual property of a third
              party.

    

    
      	 	 

    

    
      	 	(c) Neither party shall owe an indemnity to an
              Indemnified Party unless the party seeking indemnification (i) provides
              prompt notice of a claim for indemnification, (ii) allows the indemnifying
              party to control the defense including settling a claim in its sole
              discretion, provided that no settlement shall impose an obligation
              on the
              Indemnified Party without such party’s prior written consent, and (iii)
              provides reasonable cooperation in the claim.

    

    
      	 	 

    

    11.2 Neither
      party shall be liable for non-performance or delays in performance when due
      in
      whole or in part to any actual or threatened act of God, war, the public enemy,
      mobilization, riot, strike, lockout or labor difficulties, drought, fire, flood,
      explosion, accident, shortage of cars, delays of carriers, embargoes, the acts
      or orders of governments or political subdivisions thereof, inability to obtain
      suitable and sufficient supplies of raw materials from its customary sources,
      or
      any other contingency or cause beyond the reasonable control of the affected
      party which prevents the manufacture, shipment, transport or use of Products
      sold hereunder. 

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

      
        Portions
          of this Exhibit were omitted and have been filed separately with the Secretary
          of the Commission pursuant 

        to
          the Company’s application requesting confidential treatment under Rule 406
          of the Securities Act

         

      

    

    11.3 This
      Agreement and the Exhibits attached hereto set forth the entire agreement and
      understanding of the parties with respect to the transactions contemplated
      hereby and supersede all prior agreements or understandings between the parties
      with respect thereto. This Agreement may be amended, modified, superseded or
      canceled only by a written instrument which specifically references this
      Agreement and which is executed by authorized representatives of both Arbios
      and
      Membrana. Any terms or conditions in conflict with or in addition to those
      set
      forth in this Agreement which appear on any purchase order forms,
      acknowledgement forms, shipping documents or other similar documents and printed
      forms, shall not be valid or binding.

    

    11.4 This
      Agreement is not assignable or transferable by either party without the prior
      written consent of the other party except to its successor or the transferee
      of
      all or substantially all of the assigning party’s business and assets to which
      this Agreement relates, and shall be binding upon and inure to the benefit
      of
      the parties, their respective Affiliates and their successors and permitted
      assigns. Each party will cause its Affiliates to abide by the terms and
      conditions of this Agreement.

     

    11.5 Governing
      Law; Dispute Resolution.

    

    
      	
                
                11.5.1

            	
              This
                Agreement shall be governed by North Carolina law. The United Nations
                Convention on Contracts for the International Sale of Goods shall
                not
                apply to this Agreement or the transactions contemplated
                hereunder.

            

    

    

    
      	11.5.2  	
              The
                parties recognize that a bona fide dispute as to certain matters
                may from
                time to time arise during the term of this Agreement which relates
                to
                either party’s rights and/or obligations hereunder. In the event of the
                occurrence of such a dispute, either party may, by notice to the
                other
                party, have such dispute referred to their senior officers as may
                be
                designated by each party for attempted resolution by good faith
                negotiations within thirty (30) days after such notice is received.
                In the
                event the designated officers are not able to resolve such dispute
                within
                such thirty (30) day period, or such other period of time as the
                parties
                may mutually agree in writing, each party shall have the right to
                pursue
                available remedies through the dispute procedure set forth in Section
                11.5.3. Notwithstanding the foregoing, each party shall have the
                right to
                seek immediate injunctive relief to enforce its rights under Section
                8.

            

    

    

    
      	11.5.3  	
              Any
                disputes relating to this Agreement of whatever nature that cannot
                be
                resolved by negotiation between the Parties shall be referred for
                final
                resolution to arbitration by an arbitration panel comprising one
                arbitrator appointed by Membrana and one arbitrator appointed by
                Arbios,
                and a Chairman of the Arbitration Panel who shall be appointed by
                the
                first two (2) arbitrators. Any such arbitration proceeding shall
                be
                conducted in accordance with the arbitration rules of the American
                Arbitration Association, and the arbitration award shall be final
                and
                nonappealable and such award may be entered in any court having
                jurisdiction.

            

    

    

    
      	11.5.4  	
              Any
                arbitration arising out of this Agreement shall be brought only in
                Charlotte, North Carolina or Wuppertal Germany, at the option of
                the party
                requesting the arbitration. 

            

    

    

    11.6 Nothing
      in this Agreement shall give either party any ownership or rights to acquire
      or
      use any of the intellectual property of the other party. 

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

      
        Portions
          of this Exhibit were omitted and have been filed separately with the Secretary
          of the Commission pursuant 

        to
          the Company’s application requesting confidential treatment under Rule 406
          of the Securities Act

         

      

    

    11.7 The
      failure of either party to enforce at any time any of the provisions of this
      Agreement or to require at any time performance by
      the
      other party of any of the provisions hereof shall in no way be construed to
      be a
      partial or future waiver of such provisions nor in any way to affect the
      validity of this Agreement or any part hereof or the right of either party
      thereafter to enforce each and any such provision.

     

    11.8 This
      Agreement may be executed in counterparts, each of which shall constitute an
      original and all of which, taken together, shall be deemed to be one and the
      same original instrument. Delivery of an executed signature page by facsimile
      shall be effective as an original signature.

     

    11.9 If
      any
      one or more of the provisions contained in this Agreement including any exhibit
      hereto should be held invalid or unenforceable in any respect, the validity
      and
      enforceability of the remaining provisions shall not in any way be affected
      or
      impaired thereby. The parties shall endeavor in good faith to replace the
      invalid or unenforceable provisions with valid provisions that preserve the
      intent of the invalidated provision.

    

     

    ***

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      Portions
        of this Exhibit were omitted and have been filed separately with the Secretary
        of the Commission pursuant 

      to
        the Company’s application requesting confidential treatment under Rule 406
        of the Securities Act

       

    

    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
      day
      and date first above mentioned.

     

    
      
        	Membrana
                GmbH	 	 	 
	 	 	 	 	 
	By:	/s/
                Ulf
                Seidel	 	By:	/s/ Tamara
                Kunert-Lotus 
	Name:	Dr. Ulf Seidel	 	Name:	Dr. Tamara Kunert-Lotus
                
	Title:	VP
                Sales and
                Marketing - Medical Separations	 	Title:	Manager
                New
                Business Development

      

    

     

    
      	Arbios
              Systems, Inc.	 	 	 
	 	 	 	 	 
	By:	/s/
              Walter
              Ogier	 	 	 
	Name:	Walter C. Ogier	 	 	 
	Title:	President
              and
              CEO	 	 	 

    

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    
      Portions
        of this Exhibit were omitted and have been filed separately with the Secretary
        of the Commission pursuant 

      to
        the Company’s application requesting confidential treatment under Rule 406
        of the Securities Act

       

    

    Exhibit
      A

    

    Products
      (Hollow Fiber Membrane)

     

    
      	
              1. SYNCLEAR
                bundles 0.2

            	 
	 	 
	Capillaries/bundle:	12,000  +/-
              100
	Length/bundle:	272 +/- 2 mm
	Bundle diameter:	39 +/- 2 mm
	Fiber to yarn ratio:	10:2
	 	 
	 	 
	2. SYNCLEAR bundles 0.35	 
	 	 
	Capillaries/bundle:	12,000  +/-
              100
	Length/bundle: 	272 +/- 2 mm
	Bundle diameter: 	39 +/- 2 mm
	Fiber to yarn ratio:	10:2
	 	 
	3. SYNCLEAR
              bundles 0.5	 
	 	 
	Capillaries/bundle:	12,000  +/-
              100
	Length/bundle:	272 +/- 2 mm
	Bundle diameter:	39 +/- 2 mm
	Fiber to yarn ratio:	10:2

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

      
        Portions
          of this Exhibit were omitted and have been filed separately with the Secretary
          of the Commission pursuant 

        to
          the Company’s application requesting confidential treatment under Rule 406
          of the Securities Act

         

      

    

    Exhibit
      B

    

    Specifications

     

    SYNCLEAR
      Capillary Membranes 0.2, 0.35 and 0.5

    

    
      	·  	
              Water
                used for the production of SYNCLEAR membrane lots must meet specifications
                of Membrana’s Quality Testing Plan;

            

    

    
      	o  	
              [***]

            

    

    
      	o  	
              [***]

            

    

    
      	·  	
              Tensile
                Strength: [***] 

            

    

    
      	·  	
              Elongation
                at Break : [***]

            

    

     

    
      	·  	
              Performance
                Testing

            

    

    

    
      	
              Membrane
                Type

            	
              BSA
                Sieving Coefficient*

            	
              Ultrafiltrate
                Rate**

            
	
              SYNCLEAR
                0.5

            	
              [***]

            	
              [***]
                

            
	
              SYNCLEAR
                0.35

            	
              [***]

            	
              [***]

            
	
              SYNCLEAR
                0.2

            	
              [***]

            	
              [***]

            

    

    *
      BSA
      sieving coefficient data calculated using 3 σ analyses (using a 5% BSA solution)

    **Measured
      in water 200 mbar 

    

    
      	·  	
              Additional
                physical properties according to currently valid data sheets as attached
                (polymer, wall thickness, inner diameter, Albumin sieving
                coefficient).

            

    

     

    
      	·  	
              Data
                will be collected and specifications may be changed during the term
                of
                this supply agreement. However, specification changes need to be
                agreed
                upon by both parties in writing. 

            

    

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    
      Portions
        of this Exhibit were omitted and have been filed separately with the Secretary
        of the Commission pursuant 

      to
        the Company’s application requesting confidential treatment under Rule 406
        of the Securities Act

       

    

    Exhibit
      C

    

    Arbios’
      Patents

    

    
      	
              U.S.
                Patent. No. and 

              Issue
                Date

            	
              Title

            	
              Inventors

            
	
              5,571,418

              11/5/1996

            	
              Hemofiltration
                of Toxic Mediator-Related Diseases

            	
              Lee,
                Patrice A.

              Matson,
                James R.

              Pryor,
                Robert W.

            
	
              6,287,516

              9/11/2001

            	
              Hemofiltration
                Systems, Methods, and Devices Used to Treat Inflammatory Mediator
                Related
                Diseases

            	
              Lee,
                Patrice R.

              Matson,
                James R.

            
	
              6,730,266

              5/4/2004

            	
              Hemofiltration
                Systems, Methods, and Devices Used to Treat Inflammatory Mediator
                Related
                Diseases

            	
              Lee,
                Patrice A.

              Matson,
                James R.

            
	
              6,736,972

              5/18/2004

            	
              Method
                and System for Providing Therapeutic Agents with Hemofiltration for
                Reducing Inflammatory Mediator Related Diseases

            	
              Matson,
                James R.

            
	
              6,787,040

              9/7/2004

            	
              Method
                and System for Colloid Exchange Therapy

            	
              Lee,
                Patrice A.

              Matson,
                James R.

              Radunsky,
                David

            

    

     

    

    
      	
              U.S.
                Appln. No. and 

              File
                Date*

            	
              Title

            	
              Inventors

            
	
              20060129082

              8/11/2003

            	
              Selective
                Plasma Exchange Therapy

            	
              Rozga,
                Jacek

            
	
              10/796,882

              3/8/2004

            	
              Method
                and System for Colloid Exchange Therapy

            	
              Lee,
                Patrice A.

              Matson,
                James R.

              Radunsky,
                David

            
	
              10/826,736

              4/16/2004

            	
              Hemofiltration
                Systems, Methods and Devices Used to Treat Inflammatory Mediator
                Related
                Disease

            	
              Lee,
                Patrice A.

              Matson,
                James R.

            
	
              10/843,933
                (now allowed)

              5/12/2004

            	
              Hemofiltration
                Systems, Methods, and Devices Used for Treatment of Chronic and Acute
                Diseases

            	
              Matson,
                James R.

            
	
              11/387,556

              3/23/2006

            	
              Method
                and System for Colloid Exchange Therapy

            	
              Lee,
                Patrice A.

              Matson,
                James R.

              Radunsky,
                David

            

    

     

    *Applications
      shall only be deemed a part of this Exhibit C once issued and written notice
      of
      such issuance is delivered to Membrana.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

       

      
        Portions
          of this Exhibit were omitted and have been filed separately with the Secretary
          of the Commission pursuant 

        to
          the Company’s application requesting confidential treatment under Rule 406
          of the Securities Act

      

    

    Exhibit
      D

    

    Prices

    

    Base
      Prices for Products shall be determined based upon the order size according
      to
      the table below.

    

    
      	
              Individual
                Purchase Order size,

              Km
                of Product

            	
              Allowable
                Increment of shipment size

              Km
                of Product

            	
              Increment
                of Invoice Amount, Euro

            	
              Net
                Invoice Amount,

              Euro

            	
              Effective
                Price per km Product for Full Increment
                Order

            
	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            
	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            
	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            
	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            
	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            
	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            
	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            	
              [***]

            

    

     

    Example
      A: Cost/Price Calculation: Single order for [***]

    
       

      
        
          
          

        

        
          14Unassociated Document

    Exhibit
      10.3

    CONSULTING
      AGREEMENT

    

    Arbios
      Systems, Inc.

    1050
      Winter Street, Suite 1000

    Waltham,
      Massachusetts 02451

    

    
      	 	
              
                November
                  8, 2007

              

            

    

     

    David
      Zeffren

    211
      S.
      Alta Vista Blvd.

    Los
      Angeles, CA 90036

    

    Dear
      David:

    

    This
      letter is to confirm our understanding with respect to (i) your rendering
      services as a consultant to the Company, (ii) your continuing agreement not
      to
      compete with the company in its direct area of business, (iii) your
      continuing agreement to protect and preserve information and property which
      is
      confidential and proprietary to the Company or other parties with whom the
      Company does business, and (iv) your agreement to release the Company from
      potential claims associated with your past employment (the terms and conditions
      agreed to in this letter shall hereinafter be referred to as the “Agreement”).
      Hereinafter, reference to “you” or to “we” includes in each case you and all
      other associates or subcontractors, if any, which you may employ on behalf
      of
      the Company, whom you shall ensure are bound by the terms of this Agreement.
      In
      consideration of the mutual promises and covenants contained in this Agreement,
      and for other good and valuable consideration, the receipt and sufficiency
      of
      which are hereby mutually acknowledged, we have agreed as follows: 

    

    1.
      Services
      of Consultant.
      You
      agree to render services to the Company as an independent contractor to, and
      not
      as an employee of, the Company. Your principal service will be to advise and
      support the Company regarding its FDA and similar regulatory and clinical
      affairs interactions, and to perform related services in the Company’s business,
      each as directed by the Company’s Chief Executive Office (CEO) and each
      occasionally and from time to time. You shall devote your best efforts in the
      performance of the foregoing services. You acknowledge and agree that you will
      be an independent contractor for all purposes including, but not limited to,
      payroll and tax purposes, and that you shall not represent yourself to be an
      employee or officer of the Company unless so designated by a written agreement
      signed by the Company.

    

    2.
      Term
      of Consulting Arrangement.
      Your
      services as a consultant to the Company will begin immediately upon your
      termination of your regular employment with the Company on September 1, 2007.
      You agree that the Company has the right terminate your consulting arrangement
      hereunder at any time, with or without cause, which right shall be exercisable
      by written notice sent to you by the Company and shall be effective immediately
      as of the date of such notice or a later date as the Company may specify.
      Similarly, you have the right to terminate your services to the Company at
      any
      time, which right shall be exercisable by written notice sent to the Company
      by
      you and shall be effective immediately as of the date of such notice or a later
      date as you may specify. In the event such notice is given, you shall use best
      efforts to reduce cost to the Company as a result of such termination. The
      Company’s obligation will be to reimburse you for cost incurred as of final date
      of termination, including any uncancellable legal obligations to third parties
      relating to and permitted under this Agreement, such as purchase orders, which
      were entered into prior to effective termination notice. 

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    3.
      Compensation
      for Services.
      The
      Company shall pay you as your exclusive compensation for your services and
      agreements hereunder at a rate of $10,400 per month commencing October 1, 2007,
      for work which you perform on behalf of the Company and which has been agreed
      in
      advance by the CEO of the Company. For the month of September 2007 you will
      receive a prorated amount in the amount of $8,216. You shall also be reimbursed
      for reasonable and customary expenses (costs) incurred by you on behalf of
      the
      Company. Such expenses include, but are not limited to, costs incurred for
      transportation, travel, lodging, meals, delivery, communications, literature
      search and retrieval. To receive payment of such expenses, you shall provide
      the
      Company with an invoice each month in which work is performed, which reflects
      professional services, the nature of such services, and qualifying expenses
      rendered through the end of the prior month. The Company agrees that all
      invoiced fees and expenses payable under this contract will be paid to you
      within thirty (30) days of receipt of said invoice. Any services to be provided
      by your associates or subcontractors shall be agreed in advance with the
      Company, including compensation to be paid by the Company. 

    

    In
      addition, you may also be eligible for certain cash bonuses upon completion
      of
      key milestones by certain dates (e.g. successful platform testing of the Gen
      II
      cartridge, Filing of the Pivotal IDE, First patient treated in the pivotal
      trial). Such payments would not be made until either the closing of the next
      round of funding or consummation of a strategic partnership that would result
      in
      corporate funding.

    

    4.
      General
      Release and Waiver of Claims.
      In
      consideration of the payments and other agreements set forth in this Agreement,
      you for yourself, and for your heirs, executors, estates, agents,
      representatives, attorneys, insurers, successors and assigns (collectively,
      the
“Releasors”), hereby voluntarily release and forever discharge the Company and
      its subsidiaries (direct and indirect), affiliates, related companies,
      divisions, and predecessor and successor companies, and each of its and their
      present, former and future shareholders, officers, directors, employees, agents,
      representatives, attorneys, insurers and assigns (collectively, the “Releasees”)
      from all actions, causes of action, suits, debts, sums of money, accounts,
      covenants, contracts, agreements, promises, damages, judgments, demands and
      claims which the Releasors ever had, or now have, or hereafter can, shall or
      may
      have, for, upon or by reason of any matter or cause whatsoever arising from
      the
      beginning of the world to the date of the execution of this Release, whether
      known or unknown, in law or equity, whether statutory or common law, whether
      federal, state, local or otherwise, including but not limited to claims arising
      out of or in any way related to your engagement by the Company (including your
      hiring), or the termination of that engagement, or any related matters
      (including but not limited claims, if any, arising under the Age Discrimination
      in Employment Act of 1967, as amended by the Older Workers Benefit Protection
      Act, the Civil Rights Act of 1866, Title VII of the Civil Rights Act of 1964,
      as
      amended, the Civil Rights Act of 1991, as amended, the Americans with
      Disabilities Act of 1990, as amended, the Family and Medical Leave Act of 1993,
      the Immigration Reform and Control Act of 1986, the Employee Retirement Income
      Security Act of 1974, and federal or state statutes governing payment of wages,
      federal or state common law, or any other applicable federal, state or local
      law, statute, regulation or ordinance. Notwithstanding the foregoing, nothing
      contained in this paragraph shall be construed to bar any claim by you to
      enforce the terms of this Agreement or any claim of final biweekly compensation
      under your employment agreement with the Company.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    5.
      Continuing
      Obligations.
      Your
      obligations under this Agreement other than the provisions of Section 1 shall
      not be affected by any termination of your consulting arrangement, including
      termination upon the Company’s initiative. Further, your obligations of the
      Employee Invention Assignment and Confidentiality Agreement which you have
      previously executed with the Company at the outset of your previous employment
      shall continue in effect as if you have remained an employee of the Company
      during the term of this Agreement.

    

    6.
      Prohibited
      Competition.
       

    

    (a)
      We
      have discussed, and you recognize and acknowledge the competitive and
      proprietary nature of the Company’s business operations. You further acknowledge
      and agree that a business will be deemed competitive with the Company if it
      conducts planning or operations or otherwise engages in the Company’s Field of
      Interest. You further acknowledge and agree that, during the course of your
      consultancy as well as having previously performed services for the Company
      as
      an employee, the Company has already and will furnish, disclose or make
      available to you confidential and proprietary information related to the
      Company’s business. You also acknowledge that such confidential information has
      been developed and will be developed by the Company through the expenditure
      by
      the Company of substantial time, effort and money and that all such confidential
      information could be used by you to compete with the Company.

    

    (b)
      You
      acknowledge and agree that, although the Company has retained your consulting
      services on a non-exclusive basis, you currently are not a party to, and during
      the term of this Agreement, and for one year following termination of this
      Agreement, you will not without first advising the Company in writing a) enter
      into any agreement, arrangement, understanding or other relationship pursuant
      to
      which you are obligated to render advice and/or services to a commercial entity
      in the Company’s “Field of Interest,” either as principal, agent, stockholder,
      employee, consultant, representative, or in any other capacity or b) own,
      manage, operate or control, or be concerned, connected or employed by, or
      otherwise associate in any manner with, engage in or have a financial interest
      in any such entity, except that nothing contained herein shall preclude you
      from
      purchasing or owning securities of any such business if such securities are
      publicly traded, and provided that your holdings do not exceed three (3%)
      percent of the issued and outstanding securities of any class of securities
      of
      such business. The term “Field of Interest” with respect to the Company
      currently means the development or commercialization of medical devices or
      cell
      therapies for the treatment of liver disease, viral hepatitis or septic shock.
      The Company may modify the definition of its Field of Interest by written notice
      to you based on the activities in which the Company is then engaged or in which
      the Company then proposes to be engaged.

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

    (c)
      Further, neither individually nor on behalf of or through any third party,
      shall
      you directly or indirectly, solicit, entice or persuade or attempt to solicit,
      entice or persuade any other employees of or consultants to the Company or
      any
      present or future parent, subsidiary or affiliate of the Company to leave the
      services of the Company or any such parent, subsidiary or affiliate for any
      reason.

    

    (d)
      You
      further recognize and acknowledge that the types of employment which are
      prohibited by this Section 5 are narrow and reasonable in relation to the skills
      which represent your principal salable asset both to the Company and to your
      other prospective employers, and (ii) the specific scope of the provisions
      of
      this Section 5 is reasonable, legitimate and fair to you in light of the
      Company’s need to protect its proprietary information and to make the Company’s
      business profitable and in light of the limited restrictions on the type of
      employment prohibited herein compared to the types of employment for which
      you
      are qualified to earn your livelihood.

    

    (e)
      Your
      acknowledgements and agreements set forth in this Section 5 shall survive the
      expiration or termination of this Agreement and the termination of your
      employment with the Company for any reason.

    

    7.
      Protected
      Information.
      You
      shall at all times, both during and after any termination of the consulting
      arrangement by either the Company or you, maintain in confidence and shall
      not,
      without the prior written consent of the Company, use, except in the course
      of
      performance of your duties for the Company and specifically not for the benefit
      of others outside the Company, disclose or give to others any fact or
      information which was disclosed to or discerned or developed by you during
      the
      course of performing services for, or receiving training from, the Company,
      and
      is not generally available to the public including but not limited to
      information and facts concerning business plans, customers, future customers,
      suppliers, licensors, licensees, partners, investors, affiliates or others,
      training methods and materials, financial information, sales prospects, client
      lists, inventions (as defined in paragraph 7), or any other scientific,
      technical, trade or business secret or confidential or proprietary information
      of the Company or of any third party provided to you in the course of your
      consultancy to the Company. You also agree not to file patents, copyrights
      or
      trademark applications based on the Company’s technology, property or
      confidential information, nor seek to make improvements thereon, without the
      Company’s approval. You agree not to make any copies of such confidential or
      proprietary information of the Company (except when appropriate for the
      furtherance of the business of the Company or duly and specifically authorized
      to do so) and promptly upon request, whether during or after the period of
      the
      consulting arrangement, to return to the Company any and all documentary,
      machine-readable or other elements or evidence of such confidential or
      proprietary information (including all Regulatory and Clinical documentation),
      and any copies that may be in your possession or under your control. In the
      event you are questioned by anyone not employed by the Company or by an employee
      of or a consultant to the Company not authorized to receive such information,
      in
      regard to any such information or any other secret or confidential work of
      the
      Company, or concerning any fact or circumstance relating thereto, you will
      promptly notify the President of the Company.

    

    8.
      Ownership
      of Ideas, Copyrights and Patents.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

    

    (a)
      Property
      of the Company.
      You
      agree that all ideas, discoveries, creations, manuscripts and properties,
      innovations, improvements, know-how, inventions, designs, developments,
      apparatus, techniques, methods, biological processes, cell lines, laboratory
      notebooks, and formulae (all of the foregoing being hereinafter referred to
      as
“the inventions”) which may be used in the business of the Company, whether or
      not reduced to practice and whether patentable, copyrightable or not, which
      you
      may conceive, reduce to practice or develop during the Term, alone or in
      conjunction with another, or others, and whether at the request or upon the
      suggestion of the Company, or otherwise, shall be the sole and exclusive
      property of the Company if made or improved during any time during which you
      are
      providing services to the Company or with the assistance of financial or other
      support from the Company, and that you shall not publish any of the inventions
      without the prior written consent of the Company. You hereby assign to the
      Company all of your right, title and interest in and to all of the foregoing.
      You agree to maintain and furnish to the Company complete and current records
      of
      all such inventions and disclose to the Company in writing any such
      inventions.

    

    (b)
      Right
      of First Refusal of the Company.
      In the
      event that you, alone or with others, develop or improve any inventions in
      the
      Field of Interest at times during which you are not providing services to the
      Company and without the financial or other support of the Company, you agree
      to
      provide the Company with a right of first refusal to purchase or license any
      and
      all such inventions.

    

    (c)
      Cooperation.
      At any
      time during or after the Term, you agree that you will fully cooperate with
      the
      Company, its attorneys and agents, in the preparation and filing of all papers
      and other documents as may be required to perfect the Company’s rights in and to
      any of such inventions, including, but not limited to, joining in any proceeding
      to obtain letters patent, copyrights, trademarks or other legal rights of the
      United States and of any and all other countries on such inventions, provided
      that the Company will bear the expense of such proceedings, and that any patent
      or other legal right so issued to you, personally, shall be assigned by you
      to
      the Company without charge by you. You hereby designate the Company as your
      agent, and grant to the Company a power of attorney with full power of
      substitution (which power of attorney shall be deemed coupled with an interest),
      for the purpose of effecting the foregoing assignments from you to the
      Company.

    

    9.
      Records.
      Upon
      termination of your relationship with the Company, you shall deliver to the
      Company any property of the Company which may be in your possession including
      products, materials, memoranda, notes, laboratory notebooks, records, reports,
      all Regulatory and Clinical documentation or other documents or photocopies
      of
      the same.

    

    10.

No
      Conflicting Agreements.
      You
      hereby represent and warrant that you have no commitments or obligations
      inconsistent with this Agreement. You hereby agree to indemnify and hold the
      Company harmless against any loss, damage, liability or expense arising from
      any
      claim based upon circumstances alleged to be inconsistent with such
      representation and warranty. During the term of this Agreement, you will not
      enter into any agreement, either written or oral, which may be in conflict
      with
      this Agreement, and you will arrange to provide your services under this
      Agreement in such a manner and at such times that your services will not
      conflict with your responsibilities under any other agreement, arrangement
      or
      understanding or pursuant to any employment relationship that you may have
      at
      any time with any third party. 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

    

    11.
      No
      Employment Relationship Created.
      This
      Agreement does not constitute, and shall not be construed as constituting,
      an
      undertaking by the Company to hire you as an employee of the Company. You
      acknowledge that you will be working as a consultant only, and not as an
      employee. You will not be entitled to receive any of the benefits provided
      by
      the Company to its employees and you will be solely responsible for the payment
      of all federal, state and local taxes and contributions imposed or required
      on
      income, unemployment insurance, social security and any other law or
      regulation.

    

    12.
      General.

    

    (a)
      Notices.
      All
      notices, requests, consents and other communications hereunder shall be in
      writing, shall be addressed to the receiving party’s address set forth below or
      to such other address as a party may designate by notice hereunder, and shall
      be
      either (i) delivered by hand, (ii) made by telex, telecopy or
      facsimile transmission, (iii) sent by overnight courier, or (iv) sent
      by registered mail, return receipt requested, postage prepaid

    

    If
      to
      Arbios Systems, Inc.: 

    

    Shawn
      P.
      Cain

    Interim
      President and Chief Executive Officer

    Arbios
      Systems, Inc.

    1050
      Winter Street, Suite 1000

    Waltham,
      Massachusetts 02451

    FAX
      1-781-839-7295

    

    If
      to
      you, David Zeffren: 

    

    David
      Zeffren

    211
      S.
      Alta Vista Blvd.

    Los
      Angeles, CA 90036

     

    All
      notices, requests, consents and other communications hereunder shall be deemed
      to have been given either (i) if by hand, at the time of the delivery
      thereof to the receiving party at the address of such party set forth above,
      (ii) if made by telex, telecopy or facsimile transmission, at the time that
      receipt thereof has been acknowledged by electronic confirmation or otherwise,
      (iii) if sent by overnight courier, on the next business day following the
      day such notice is delivered to the courier service, or (iv) if sent by
      registered mail, on the fifth business day following the day such mailing is
      made.

    

    (b)
      Entire
      Agreement.
      This
      Agreement embodies the entire agreement and understanding between the parties
      hereto with respect to the subject matter hereof and supersedes all prior oral
      or written agreements and understandings relating to the subject matter hereof.
      No statement, representation, warranty, covenant or agreement of any kind not
      expressly set forth in this Agreement shall affect, or be used to interpret,
      change or restrict, the express terms and provisions of this Agreement.

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

    

    (c)
      Modifications
      and Amendments.
      The
      terms and provisions of this Agreement may be modified or amended only by
      written agreement executed by the parties hereto.

    

    (d)
      Waivers
      and Consents.
      The
      terms and provisions of this Agreement may be waived, or consent for the
      departure therefrom granted, only by written document executed by the party
      entitled to the benefits of such terms or provisions. No such waiver or consent
      shall be deemed to be or shall constitute a waiver or consent with respect
      to
      any other terms or provisions of this Agreement, whether or not similar. Each
      such waiver or consent shall be effective only in the specific instance and
      for
      the purpose for which it was given, and shall not constitute a continuing waiver
      or consent.

    

    (e)
      Assignment.
      The
      Company may assign its rights and obligations hereunder to any person or entity
      who succeeds to all or substantially all of the Company’s business or that
      aspect of the Company’s business in which you are principally involved. Your
      rights and obligations under this Agreement may not be assigned by you without
      the prior written consent of the Company.

    

    (f)
      Benefit.
      All
      statements, representations, warranties, covenants and agreements in this
      Agreement shall be binding on the parties hereto and, in the case of the
      Company, its parents, subsidiaries and other affiliates, and in your case,
      upon
      yours heirs, executors and administrators; and shall inure to the benefit of
      the
      respective successors and permitted assigns of each party hereto. Nothing in
      this Agreement shall be construed to create any rights or obligations except
      among the parties hereto, and no person or entity shall be regarded as a
      third-party beneficiary of this Agreement.

    

    (g)
      Governing
      Law.
      This
      Agreement and the rights and obligations of the parties hereunder shall be
      construed in accordance with and governed by the law of The Commonwealth of Massachusetts,
      without giving effect to the conflict of law principles thereof.

    

    (h)
      Arbitration.
      Except
      with respect to the provisions of Sections 5, 6 and 7 hereof, any controversy,
      dispute or claim arising out of or in connection with this Agreement, or the
      breach, termination or validity hereof, shall be settled by final and binding
      arbitration to be conducted by an arbitration tribunal in Boston, Massachusetts,
      pursuant to the rules of the American Arbitration Association. The arbitration
      tribunal shall consist of three arbitrators. The party initiating arbitration
      shall nominate one arbitrator in the request for arbitration and the other
      party
      shall nominate a second in the answer thereto within thirty (30) days of receipt
      of the request. The two arbitrators so named will then jointly appoint the
      third
      arbitrator. If the answering party fails to nominate its arbitrator within
      the
      thirty (30) day period, or if the arbitrators named by the parties fail to
      agree
      on the third arbitrator within sixty (60) days, the office of the American
      Arbitration Association in Boston, Massachusetts shall make the necessary
      appointments of such arbitrator(s). The decision or award of the arbitration
      tribunal (by a majority determination, or if there is no majority, then by
      the
      determination of the third arbitrator, if any) shall be final, and judgment
      upon
      such decision or award may be entered in any competent court or application
      may
      be made to any competent court for judicial acceptance of such decision or
      award
      and an order of enforcement. In the event of any procedural matter not covered
      by the aforesaid rules, the procedural law of the Commonwealth of Massachusetts
      shall govern.

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    (i)
      Jurisdiction
      and Service of Process.
      Except
      as governed by the above paragraph (h), any legal action or proceeding with
      respect to this Agreement shall be brought in the courts of The Commonwealth
      of
      Massachusetts or of the United States of America for the First District of
      Massachusetts. By execution and delivery of this Agreement, each of the parties
      hereto accepts for itself and in respect of its property, generally and
      unconditionally, the jurisdiction of the aforesaid courts. Each of the parties
      hereto irrevocably consents to the service of process of any of the
      aforementioned courts in any such action or proceeding by the mailing of copies
      thereof by certified mail, postage prepaid, to the party at its address set
      forth in Section 12(a) hereof.

    

    (j)
      Severability.
      The
      parties intend this Agreement to be enforced as written. However, (i) if any
      portion or provision of this Agreement shall to any extent be declared illegal
      or unenforceable by a duly authorized court having jurisdiction, then the
      remainder of this Agreement, or the application of such portion or provision
      in
      circumstances other than those as to which it is so declared illegal or
      unenforceable, shall not be affected thereby, and each portion and provision
      of
      this Agreement shall be valid and enforceable to the fullest extent permitted
      by
      law; and (ii) if any provision, or part thereof, is held to be unenforceable
      because of the duration of such provision or the geographic area covered
      thereby, the Company and you agree that the court making such determination
      shall have the power to reduce the duration and/or geographic area of such
      provision, and/or to delete specific words and phrases (“blue-pencilling”), and
      in its reduced or blue-pencilled form such provision shall then be enforceable
      and shall be enforced.

    

    (k)
      Headings
      and Captions.
      The
      headings and captions of the various subdivisions of this Agreement are for
      convenience of reference only and shall in no way modify, or affect the meaning
      or construction of any of the terms or provisions hereof.

    

    (l)
      Injunctive
      Relief.
      You
      hereby expressly acknowledge that any breach or threatened breach of any of
      the
      terms and/or conditions set forth in Section 5, 6 or 7 of this Agreement will
      result in substantial, continuing and irreparable injury to the Company.
      Therefore, you hereby agree that, in addition to any other remedy that may
      be
      available to the Company, the Company shall be entitled to injunctive or other
      equitable relief by a court of appropriate jurisdiction in the event of any
      breach or threatened breach of the terms of Section 5, 6 or 7 of this Agreement.
      

    

    (m)
      No
      Waiver of Rights, Powers and Remedies.
      No
      failure or delay by a party hereto in exercising any right, power or remedy
      under this Agreement, and no course of dealing between the parties hereto,
      shall
      operate as a waiver of any such right, power or remedy of the party. No single
      or partial exercise of any right, power or remedy under this Agreement by a
      party hereto, nor any abandonment or discontinuance of steps to enforce any
      such
      right, power or remedy, shall preclude such party from any other or further
      exercise thereof or the exercise of any other right, power or remedy hereunder.
      The election of any remedy by a party hereto shall not constitute a waiver
      of
      the right of such party to pursue other available remedies. No notice to or
      demand on a party not expressly required under this Agreement shall entitle
      the
      party receiving such notice or demand to any other or further notice or demand
      in similar or other circumstances or constitute a waiver of the rights of the
      party giving such notice or demand to any other or further action in any
      circumstances without such notice or demand.

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

    

    (n)
      Expenses.
      Should
      any party breach this Agreement, in addition to all other remedies available
      at
      law or in equity, such party shall pay all of any other party’s costs and
      expenses resulting therefrom and/or incurred in enforcing this Agreement,
      including legal fees and expenses.

    

    (o)
      Counterparts.
      This
      Agreement may be executed in one or more counterparts, and by different parties
      hereto on separate counterparts, each of which shall be deemed an original,
      but
      all of which together shall constitute one and the same instrument.

    

    If
      the
      foregoing accurately sets forth our agreement, please so indicate by signing
      and
      returning to us two original copies of this letter. One of them will then be
      returned signed for your records.

    
      	 	 	 
	 	Very
              truly
              yours,
	 	 
	 	Arbios Systems, Inc.
	 
 	 
 	 
 
	 	By:  	/s/ Shawn
              Cain
	 	
              

              Shawn
                P. Cain

              Interim
                President and Chief Executive Officer

            
	 	 

    
      	Accepted and Approved:	 	 	 
	 	 	 	 
	 	 	 	 
	/s/ David
              Zeffren	 	 	 
	
              
David
              Zeffren	 	 	
            
	 	 	 	 
	 	 	 	 
	Dated:
              _______________________	 	 	 

    

     

    
      
        
        

      

      
        9

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