Document:

Exhibit
      10.1

    

    ASSET
      PURCHASE AGREEMENT

     

    This
      Asset Purchase Agreement (the “Agreement”)
      between Arbios Systems, Inc., a Delaware corporation (the “Seller”),
      and
      HepaLife Technologies, Inc., a Florida corporation (the “Buyer”),
      is
      entered into as of October 3, 2008. The Seller and the Buyer together may be
      referred to herein as the “Parties” and each of them may be referred to herein
      as a “Party.”

    

    RECITALS

    

    WHEREAS,
      the Seller wishes to sell certain of its assets described herein to Buyer and
      Buyer wishes to purchase such assets from the Seller;

     

    NOW
      THEREFORE, in consideration of the foregoing and of the following covenants,
      the
      sufficiency of which are hereby acknowledged, the Parties hereby agree as
      follows:

     

    1. Sale
      of Assets

     

    1.1. Purchase
      and Sale of Assets.
      The
      Seller hereby agrees to sell, transfer and deliver to Buyer at Closing (as
      defined below), and the Buyer agrees to purchase and pay for, all of Seller’s
      right, title and interest in and to the (a) Investigational New Drug Application
      number 5654 for HepatAssist; including orphan drug and fast track designations
      relating to the HepatAssist program; (b) the patents, patent applications and
      inventions described by the unfiled potential patent claims listed on
Schedule
      1.1(a)
      hereto
      (the “Patents
      Rights”);
      (c)
      the trademarks, service marks, trade names and logos listed on Schedule
      1.1(a)
      hereto
      (the “Trademark
      Rights”);
      (d)
      all rights, claims, credits, judgments, choses in action, rights of set-off
      or
      rights for past, present or future infringement against third parties relating
      to the Patents Rights; (e) the agreements listed on Schedule
      1.1(b)
      hereto
      (the “Assumed
      Contracts”);
      (f)
      the prototype devices and representative custom or modified equipment listed
      in
Schedule
      1.1(c)
      hereto;
      (g) the other assets listed in Schedule
      1.1(d);
      (h) all
      records, data, results, patient files, historical samples, and clinical trial
      protocols relating to the foregoing, including without limitation those items
      listed in Schedule
      1.1(e);
      and (i)
      and all Intellectual Property (as defined below) related to any of the
      foregoing. All of the foregoing are referred to herein as the “Acquired
      Assets.”

     

    1.2. Consideration.
      The
      purchase price (the “Purchase
      Price”)
      of the
      Acquired Assets shall consist of the following: (i) $450,000 in cash, (ii)
      a
      Series D warrant to purchase up to 750,000 shares of the Buyer’s common stock at
      an exercise price of $0.35 per share in the form attached hereto as Exhibit
      1.2
      (the “Warrant”),
      and
      (iii) assumption by the Buyer of the Assumed Liabilities (as defined below).
      The
      Purchase Price shall be paid as follows: The Buyer (a) shall pay to the Seller
      within two (2) business days from the Closing Date by wire transfer of
      immediately available funds in accordance with the wire instructions set forth
      in Schedule
      1.2
      hereto
      (the “Wire
      Instructions”)
      the
      sum of Two Hundred Fifty Thousand Dollars ($250,000) and shall issue and deliver
      the Warrant, and shall assume on and after the Closing Date the Assumed
      Liabilities; and (b) on the Deferred Payment Date, shall pay to the Seller
      the
      sum of Two Hundred Thousand Dollars ($200,000) (the “Deferred
      Cash Purchase Price”).
      The
“Deferred
      Payment Date”
is
      the
      earlier to occur of (i) the date on which the Buyer has consummated one or
      more
      debt or equity financings in which the gross proceeds received since the date
      of
      this Agreement in the aggregate equal or exceed Four Million Dollars
      ($4,000,000), or (ii) the eighteen month anniversary of the Closing Date. The
      Deferred Cash Purchase Price may be reduced by amounts payable, if any, to
      Buyer
      under Section 3 (Indemnification Obligations).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    1.3. Assumption
      of Liabilities.
      At the
      Closing, the Buyer shall assume and become obligated to discharge when due
      all
      of the following liabilities:

     

    (a) All
      liabilities and obligations arising on or after the Closing Date under the
      Assumed Contracts; and

     

    (b) All
      liabilities and obligations arising on or after the Closing Date relating to
      the
      Acquired Assets, including without limitation all liabilities and obligations
      for the operation, prosecution, maintenance, upkeep, renewal, retention,
      shipment, transfer, delivery, storage or disposal of the Acquired Assets.
      Notwithstanding anything herein to the contrary, the decision whether to
      maintain the Acquired Assets after the Closing Date will be in the sole
      discretion of the Buyer, and nothing herein shall require the Seller to use,
      maintain or defend any of the Acquired Assets. 

     

    All
      of
      the foregoing are referred to as the “Assumed
      Liabilities.”
Other
      than the Assumed Liabilities, the Buyer will not assume or have any
      responsibility with respect to any other obligation or liability of the Seller
      or relating to the Acquired Assets, including any liability arising from the
      acquisition by the Seller of the Acquired Assets or the Seller’s operations
      before or after the Closing. 

     

    1.4. Closing.
      Subject
      to satisfaction of the conditions in Section 4, the closing of the sale and
      purchase of the Acquired Assets under this Agreement (the “Closing”)
      shall
      occur at a place mutually acceptable to the Buyer and the Seller at 9:00 a.m.
      on
      October 3, 2008, or such other date that is mutually acceptable to the Seller
      and the Buyer (the “Closing
      Date”).
      All
      transactions which are to take place at the Closing shall be considered to
      have
      taken place simultaneously, and no delivery or payment shall be considered
      to
      have been made until all the transactions have been completed. Title to,
      ownership of, control over and risk of loss of the Acquired Assets shall pass
      to
      Buyer effective as of 11:59 p.m. on the Closing Date unless otherwise provided
      herein.

     

    1.5. Seller’s
      Deliveries at Closing.
      On the
      Closing Date the Seller shall execute and deliver or cause to be executed and
      delivered to the Buyer (a) the Bill of Sale in the form set forth in
Exhibit
      1.5(a)
      hereto,
      (b) an Assignment and Assumption Agreement in the form set forth in Exhibit
      1.5(b)
      hereto,
      (c) an Assignment of Patents in the form set forth in Exhibit
      1.5(c)
      hereto,
      (d) an Assignment of Trademarks in the form set forth in Exhibit
      1.5(d)
      attached
      hereto, (e) any other instruments of conveyance and assignment as the parties
      and their respective counsel shall deem reasonably necessary to vest in Buyer
      the right, title and interest in and to the Acquired Assets set forth herein,
      including without limitation the written consents and confirmations set forth
      in
      Section 4.1, and (f) the Registration Rights Agreement (the form of which is
      attached hereto as Exhibit
      1.5(f).
      (The
      Bill of Sale, the Assignment and Assumption Agreement, the Assignment of
      Patents, the Assignment of Trademarks, and the Registration Rights Agreement
      as
      executed and delivered by the Seller are herein collectively referred to as
      the
“Seller
      Transaction Documents.”)
      All
      tangible assets included in the Acquired Assets shall be delivered by Seller
      to
      Buyer to one or more locations specified by the Buyer, and title and risk of
      loss shall pass to Buyer on the Closing Date. Seller shall provide Buyer with
      reasonable assistance in arranging for the shipment of tangible Acquired Assets
      to one or more locations specified by the Buyer.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    1.6. Buyer’s
      Deliveries at Closing.
      On the
      Closing Date, (a) the Buyer shall pay to the Seller the Closing Cash Purchase
      Price by wire transfer of immediately available funds, and (b) the Buyer shall
      execute and deliver or cause to be executed and delivered to the Seller (i)
      the
      Bill of Sale, (ii) the Assignment and Assumption Agreement, (iii) the Assignment
      of Patents, (iv) the Assignment of Trademarks, (v) Warrant, and (vi) the
      Registration Rights Agreement (The Bill of Sale, the Assignment and Assumption
      Agreement, the Assignment of Patents, the Assignment of Trademarks, the Warrant,
      and the Registration Rights Agreement, all as executed and delivered by the
      Buyer are herein collectively referred to as the “Buyer
      Transaction Documents”).

     

    1.7. Obligations
      on the Deferred Payment Date.
      On the
      Deferred Payment Date, the Buyer shall pay the Deferred Cash Purchase Price
      by
      wire transfer of immediately available funds in accordance with the wire
      instructions of which Seller may notify Buyer as provided for herein. In the
      event that the Deferred Cash Purchase Price is not paid on the Deferred Payment
      Date, the Seller shall have the remedies set forth in Section 6 of this
      Agreement. 

     

    2. Representations
      and Warranties.
      

     

    2.1. Representation
      and Warranties of the Seller.
      The
      Seller hereby represents and warrants to the Buyer as follows:

     

    2.1.1. Organization
      and Authorization.
      (i) The
      Seller is duly organized, validly existing and in good standing under the laws
      of its jurisdiction of organization and is duly qualified to do business as
      a
      foreign corporation and is in good standing under the laws of each jurisdiction
      in which either the ownership or use of its assets, or the nature of its
      activities, requires such qualification, with all requisite corporate power
      and
      authority to enter into this Agreement and the transaction contemplated hereby,
      (ii) the execution, delivery and performance of this Agreement and each of
      the
      Seller Transaction Documents has been duly authorized by all necessary corporate
      action of the Seller, and (iii) this Agreement and each of the Seller
      Transaction Documents has been duly executed and delivered by Seller and is
      a
      valid, binding obligation of the Seller, enforceable in accordance with its
      terms except as may be limited by applicable federal or state bankruptcy,
      insolvency, reorganization, moratorium or other laws affecting creditors’ rights
      generally. The Seller is not in default under or in violation of any provision
      of its articles of incorporation or bylaws, as amended, or any resolution
      adopted by the board of directors or stockholders of the Seller. Except for
      the
      consents referred to in Section 4.2.4 of this Agreement, the Seller is not
      required to give any notice to, make any filing with or obtain any
      authorization, consent or approval of any authority or person in order for
      the
      Parties to consummate the transaction contemplated by this
      Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2.1.2. Ownership
      of Assets.
      The
      Seller has good and marketable title to the Acquired Assets, free and clear
      of
      any and all mortgages, liens, pledges and security interests. All pre-existing
      security interests in the Acquired Assets shall, as of the Closing Date, have
      been released and discharged.

     

    2.1.3. Brokers
      and Finders.
      The
      Seller has not employed any broker or finder or incurred any liability for
      brokerage fees, commissions or finder’s fees in connection with the transactions
      contemplated by this Agreement.

     

    2.1.4. Noncontravention.
      Neither
      the execution and delivery of this Agreement and the Seller Transaction
      Documents, nor the consummation of the transactions contemplated hereby, will
      (i) violate any constitution, statute, regulation, rule to which Seller is
      subject or, to the knowledge of the Seller, any injunction, judgment, order,
      decree, ruling, charge or other restriction of any government, governmental
      agency, or court to which Seller is subject, or any provision of the Seller’s
      certificate of incorporation or By-laws, or (ii) conflict with, result in a
      breach of, constitute a default under, result in the acceleration of, create
      in
      any party the right to accelerate, terminate, modify, or cancel, or require
      any
      notice under any agreement, contract, lease, license, instrument, or other
      arrangement to which Seller is a party or by which it is bound or to which
      any
      of the Acquired Assets is subject (or result in the imposition of any security
      interest upon any of the Acquired Assets).

     

    2.1.5. 
      Legal
      Compliance.
      The
      Seller has (a) complied with all laws (including rules, regulations and codes)
      and with all plans, injunctions, judgments, orders, decrees, rulings and charges
      thereunder in each case applicable to the Acquired Assets or to the Seller’s
      business to the extent involving the Acquired Assets, and (b) to the best of
      Seller’s knowledge, no action, suit, proceeding, hearing, investigation, charge,
      complaint, claim, demand or notice has been threatened, filed or commenced
      against the Seller relating to or involving the Acquired Assets.

     

    2.1.6. No
      Litigation.
      (a) There are no actions, suits, proceedings, hearings, investigations,
      charges, complaints, claims or demands of any kind pending or, to the best
      of
      the Seller’s knowledge, threatened relating to or involving the Acquired Assets;
      (b) there are no injunctions, judgments, orders or decrees of any kind
      which are outstanding against the Acquired Assets; and (c) the Seller is
      not charged or, to the best of Seller’s knowledge, threatened with, or under
      investigation with respect to, any alleged violation of any provision of any
      law
      (including rules, regulations and codes) relating to or involving the Acquired
      Assets.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2.1.7. Intellectual Property.

     

    (a) “Intellectual
      Property” means the following, as such may exist in all countries and
      territories worldwide and under any international convention: (i) inventions
      (whether or not reduced to practice), all improvements thereto; (ii) trademarks
      and all goodwill associated therewith; (iii) works of authorship; (iv) trade
      secrets; (v) business information, confidential or otherwise (including ideas,
      research and development, know how, technical data, customer and supplier lists,
      pricing and cost information and business and marketing plans and proposals);
      (vi) databases; (vii) other proprietary rights; (viii) all registrations and
      applications therefore (as applicable) pertaining to the foregoing; and (ix)
      all
      patents, patent applications and patent disclosures, together with all
      reissuances, continuations, continuations-in-part, revisions, extensions and
      reexaminations thereof, and statutory invention registrations.

     

    (b) The
      Seller owns or has the right to use, pursuant to license, sublicense, agreements
      or other permission, the Intellectual Property transferred under this Agreement
      as part of the Acquired Assets. To the best of the Seller’s knowledge, the
      Intellectual Property transferred under this Agreement as part of the Acquired
      Assets will be owned or available for use by Buyer on identical terms and
      conditions immediately subsequent to the Closing. The Seller has taken all
      reasonable action to maintain and protect each item of Intellectual Property
      owned or used by the Seller and related to the Acquired Assets, including the
      use of work-for-hire and confidentiality agreements with all of its employees
      and independent contractors who created such Intellectual Property during the
      period that the Seller owned the Acquired Assets.

     

    (c) To
      the
      best knowledge of the Seller, the Seller’s use of the Acquired Assets has not
      interfered with, infringed upon, misappropriated, or otherwise conflicted with
      any Intellectual Property of any other person, and the Seller has never received
      any charge, complaint, claim, demand, or notice alleging any such interference,
      infringement, misappropriation or violation (including any claim that the Seller
      must license or refrain from using any Intellectual Property rights of any
      other
      person). To the best knowledge of the Seller, no other person has interfered
      with, infringed upon, misappropriated or otherwise conflicted with any
      Intellectual Property rights included in the Acquired Assets.

     

    (d) Set
      forth
      on Schedule 1.1(a)
      is
      (i) a list of each registration which has been issued to the Seller with
      respect to any of the Seller’s Intellectual Property related to the Acquired
      Assets, the date of issuance of each registration and the item of Intellectual
      Property to which each registration corresponds; (ii) a list of each
      pending application for registration which has been made with respect to any
      of
      the Intellectual Property owned or used in connection with the Acquired Assets
      by Seller, the date of each application and the item of Intellectual Property
      which is referenced in each application; (iii) a list of each material
      license, agreement or other permission which has been granted to any other
      person with respect to the Intellectual Property related to the Acquired Assets
      (together with any exceptions) and the date of each license, agreement or
      permission and the item of Intellectual Property which is the subject of each
      license, agreement or permission; and (iv) a list of each unregistered or
      unregistrable material item of Intellectual Property related to the Acquired
      Assets. With respect to each item of Intellectual Property set forth on
Schedule 1.1(a):

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (i)
      The
      Seller possesses all right, title and interest in and to the item free and
      clear
      of all liens and licenses, subject to the rights, if any, of third parties
      specified in Schedule
      2.1.7
      hereto.
      Attached hereto as Schedule
      2.1.7
      is a
      description of licenses and materials granted or transferred by prior owners
      of
      the Acquired Assets to third parties. To the best knowledge of the Seller,
      none
      of the grants or transfers to the third parties listed on Schedule
      2.1.7
      are
      evidenced by a signed agreement (the Seller has delivered to the Buyer all
      unsigned drafts of writings addressed to the third parties);

     

    (ii)
      The
      item is not subject to any outstanding injunction, judgment, order, decree,
      ruling, charge or other restriction of any authority;

     

    (iii) No
      action, suit, proceeding, hearing, investigation, charge, complaint, claim,
      or
      demand is pending or, to the best knowledge of Seller, threatened which
      challenges the legality, validity, enforceability, use, or ownership of the
      item; and

     

    (iv) The
      Seller has not agreed to indemnify any other person for or against any
      interference, infringement, misappropriation or other conflict with respect
      to
      the item.

     

    (e) Set
      forth
      on Schedule 1.1(b)
      is a
      list of each material item of Intellectual Property related to the Acquired
      Assets that any other person owns and that the Seller uses pursuant to license,
      sublicense, agreement or permission. With respect to each item of Intellectual
      Property set forth on Schedule
      1.1(b):

     

    (i) To
      the
      best of Seller’s knowledge, the license, sublicense, agreement or permission
      covering the item is legal, valid, binding, enforceable and in full force and
      effect, will continue to be legal, valid, binding, enforceable and in full
      force
      and effect following the consummation of the transactions contemplated by this
      Agreement, and Seller has fulfilled all obligations of Seller
      thereunder;

     

    (ii) The
      Seller is not and, to the best knowledge of the Seller, no other party to the
      license, sublicense, agreement or permission is in breach or default, and no
      event has occurred which with notice or lapse of time would constitute a breach
      or default or permit termination, modification or acceleration thereunder;
      

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (iii) The
      Seller has not, and to the best knowledge of the Seller, no other party to
      the
      license, sublicense, agreement or permission has repudiated any provision
      thereof;

     

    (iv) The
      item
      is not subject to any outstanding injunction, judgment, order, decree, ruling,
      charge or restriction of any authority;

     

    (v) No
      action, suit, proceeding, hearing, investigation, charge, complaint, claim
      or
      demand is pending or, to the best knowledge of the Seller, threatened which
      challenges the legality, validity or enforceability of the item;
      and

     

    (vi) The
      Seller has not granted any sublicense or similar right with respect to the
      license, sublicense, agreement or permission.

     

    2.1.8. Assumed
      Contracts.
      The
      Seller has delivered to Buyer a correct and complete copy of each Assumed
      Contract, as amended to date, and to the best of the Seller’s knowledge, the
      Assumed Contracts represent all of the contracts and agreements related to
      the
      Acquired Assets to which the Seller is a party. To the best knowledge of the
      Seller, no other agreements exist that limit the rights set forth in the Assumed
      Contracts. With respect to each Assumed Contract: (i) the Assumed Contract
      is legal, valid, binding and enforceable against the Seller and, to the Seller’s
      knowledge, the other parties thereto and is in full force and effect;
      (ii) the Assumed Contract will continue to be legal, valid, binding,
      enforceable and in full force and effect to the same extent on identical terms
      following the consummation of the transactions contemplated hereby;
      (iii) the Seller is not, and to the best knowledge of the Seller, no other
      party is in breach or default, and to the best knowledge of the Seller no event
      has occurred which with notice or lapse of time would constitute a breach or
      default, or permit termination, modification or acceleration, under the Assumed
      Contract; and (iv) to the best knowledge of the Seller, no person has
      repudiated any provision of the Assumed Contract.

     

    2.1.9. Accuracy
      and Completeness of Presentation Pages.
      Attached hereto Schedule
      2.1.9
      are
      selected pages of a PowerPoint presentation regarding “HepatAssist.” All
      statements made in Schedule
      2.1.9
      regarding test prior results, the approvals obtained from the FDA, and other
      statistical data are accurate and complete in all material
      respects.

     

    2.1.10. Accuracy
      and Completeness of Acquired Assets.
      Schedules 1.1(a) through 1.1(d) are accurate and complete in all respects to
      the
      best knowledge of Seller. To the best knowledge of Seller, the Acquired Assets
      include all assets, equipment (other than a Forma Scientific Cryogenic Storage
      Freezer and the Cryomed 8023 Nitrogen Shippers), Intellectual Property,
      contracts, agreements, records, materials and other information of Seller
      related to Seller’s HepatAssist program.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2.1.11. Brokers.
      There
      are no brokers or finders known to the Seller to be involved with this
      transaction an the Seller has not made any agreement or taken any other action
      which might cause any person to become entitled to a broker’s or finder’s fee or
      commission as a result of this transaction.

     

    2.1.12. Full
      Disclosure.
      No
      representation, warranty, covenant or agreement made by the Seller in this
      Agreement or in any statement, certificate, instrument or other document or
      item
      furnished or delivered or to be furnished or delivered to the Buyer pursuant
      to
      this Agreement or in connection with the transactions covered by this Agreement
      contains or will contain any false or misleading statement of a material fact,
      or omit any material fact required to be stated therein or necessary in order
      to
      make the statements therein not false or misleading.

     

    2.1.13. Disclaimer.
      Notwithstanding anything in this Agreement to the contrary, the Seller makes
      no,
      and hereby disclaims any, representation or warranty to the Buyer with respect
      to any warranty of merchantability or fitness for a particular purpose with
      respect to the Patent Rights set forth on Schedule
      1.1(a).
      

     

    2.2. Representations
      and Warranties of the Buyer.
      The
      Buyer hereby represents and warrants to the Seller as follows:

     

    2.2.1. Organization
      and Authorization.
      (i) The
      Buyer is duly organized, validly existing and in good standing under the laws
      of
      its jurisdiction of organization, with all requisite corporate power and
      authority to enter into this Agreement and the transaction contemplated hereby;
      (ii) the execution, delivery and performance of this Agreement and each of
      the
      Buyer Transaction Documents has been authorized by all necessary corporate
      action of Buyer; and (iii) this Agreement and each of the Buyer Transaction
      Documents is a valid, binding obligation of Buyer, enforceable in accordance
      with its terms except as may be limited by applicable federal or state
      bankruptcy, insolvency, reorganization, moratorium or other laws affecting
      creditors’ rights generally.

     

    2.2.2. Brokers
      and Finders.
      The
      Buyer has not employed any broker or finder or incurred any liability for
      brokerage fees, commissions or finder’s fees in connection with the transactions
      contemplated by this Agreement.

     

    2.2.3. Noncontravention.
      Neither
      the execution and delivery of this Agreement and the Buyer Transaction
      Documents, nor the consummation of the transactions contemplated hereby, will
      (i) violate any constitution, statute, regulation, rule to which Buyer is
      subject or, to the knowledge of the Buyer, any injunction, judgment, order,
      decree, ruling, charge or other restriction of any government, governmental
      agency, or court to which Buyer is subject, or any provision of the Buyer’s
      certificate of incorporation or By-laws, or (ii) conflict with, result in a
      breach of, constitute a default under, result in the acceleration of, create
      in
      any party the right to accelerate, terminate, modify, or cancel, or require
      any
      notice under any agreement, contract, lease, license, instrument, or other
      arrangement to which Buyer is a party or by which it is bound or to which any
      of
      the Acquired Assets is subject (or result in the imposition of any security
      interest upon any of the Acquired Assets).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2.2.4. SEC
      Reports; Financial Statements.
      The
      Buyer has filed all required forms, reports and documents with the Securities
      and Exchange Commission (“SEC”) since January 1, 2008 (“Buyer SEC Reports”),
      each of which complied at the time of filing in all material respects with
      all
      applicable requirements of the Securities Act and the Securities Exchange Act
      of
      1934 (the “Exchange Act”), as applicable, in each case as in effect on the dates
      such forms reports and documents were filed. None of the Buyer SEC Reports
      contained, when filed, an untrue statement of a material fact or omitted to
      state a material fact required to be stated or incorporated by reference therein
      or necessary in order to make the statements therein in light of the
      circumstances under which they were made not misleading, except to the extent
      superseded by a Buyer SEC Report filed subsequently and prior to the date
      hereof. Except as publicly disclosed by the Buyer since the filing of its last
      SEC Report, there have been no events, changes or effects with respect to the
      Buyer which the Buyer (i) was required to publicly disclose, in a filing with
      the SEC or otherwise, or (ii) which would reasonably be expected to have a
      material adverse effect on the Buyer. The consolidated financial statements
      of
      the Buyer included in the Buyer SEC Reports have been prepared in all material
      respects in accordance with United States generally accepted accounting
      principles (“GAAP”) consistently applied and maintained throughout the periods
      indicated and fairly present the consolidated financial position of the Buyer
      and its consolidated subsidiaries at their respective dates and the results
      of
      the consolidated results of operations and changes in financial position of
      the
      Buyer and its consolidated subsidiaries for the periods covered thereby (subject
      to normal year-end adjustments and except that unaudited financial statements
      do
      not contain all required footnotes).

     

    2.2.5. Issuance
      of the Warrant.
      The
      Warrant has been duly authorized and, when issued in accordance with this
      Agreement, will be duly and validly issued, fully paid and nonassessable, free
      and clear of all liens. The Buyer has reserved from its duly authorized capital
      stock the number of shares of its common stock issuable upon exercise of the
      Warrant.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    3. Indemnification
      Obligations

     

    3.1.1. The
      Seller shall indemnify and defend Buyer and hold Buyer harmless from and against
      any and all actions, suits, proceedings, hearings, investigations, charges,
      complaints, claims, demands, injunctions, judgments, orders, decrees, rulings,
      damages, dues, diminution of value, penalties, fines, amounts paid in
      settlement, liabilities, obligations, taxes, liens, losses, costs, expenses
      and
      fees, including court costs and reasonable attorneys’ fees and expenses
      (collectively, “Adverse Consequences”) arising out of, resulting from, relating
      to, in the nature of or caused by any misrepresentation or breach of any
      representation, warranty, covenant or agreement made by the Seller in this
      Agreement or in any statement, certificate, instrument or other document or
      item
      furnished or delivered or to be furnished or delivered by the Seller to Buyer
      pursuant to this Agreement or in connection with the transactions contemplated
      by this Agreement.

     

    3.1.2. Buyer
      shall indemnify and defend the Seller and hold the Seller harmless from and
      against any and all Adverse Consequences arising out of, resulting from,
      relating to, in the nature of or caused by any misrepresentation or breach
      of
      any representation, warranty, covenant or agreement made by Buyer in this
      Agreement or in any statement, certificate, instrument or other document or
      item
      furnished or delivered or to be furnished or delivered by Buyer to the Seller
      pursuant to this Agreement or in connection with the transactions contemplated
      by this Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    3.1.3. A
      party
      seeking indemnification pursuant to this Section (an “Indemnified Party”) shall
      give notice to the party from whom such indemnification is sought (the
“Indemnifying Party”) of the assertion of any claim, or the commencement of any
      action, suit or proceeding, in respect of which indemnity may be sought pursuant
      to this Section (a “Claim”) as soon as practicable after the party entitled to
      indemnification becomes aware of any fact, condition or event which may give
      rise to damages for which indemnification may be sought under this Section
      (but
      in any event on or prior to the applicable expiration date described below
      in
      Section 9) which contains (i) a description and the amount of any damages
      incurred by the Indemnified Party, (ii) a statement that the Indemnified Party
      is entitled to indemnification under this Section and a reasonable explanation
      of the basis therefor, and (iii) a demand for payment in the amount of such
      damages; provided, however that any delay or failure of any Indemnified Party
      with regard to notifying any Indemnifying Party of any Claim shall not relieve
      the Indemnifying Party from any liability hereunder except to the extent that
      the defense of such action is prejudiced by such delay or failure to notify
      or
      promptly notify. Within 15 days after delivery of a notice of a Claim, the
      Indemnifying Party shall deliver to the Indemnified Party a written response
      in
      which the Indemnifying Party shall: (I) agree that the Indemnified Party is
      entitled to receive all of the damages claimed (in which case such response
      shall be accompanied by a payment by the Indemnifying Party to the Indemnified
      Party of the damages claimed, by check or by wire transfer), (II) agree
      that the Indemnified Party is entitled to receive part, but not all, of the
      damages claimed and a reasonable explanation of the basis therefor (the “Agreed
      Amount”) (in which case such response shall be accompanied by a payment by the
      Indemnifying Party to the Indemnified Party of the Agreed Amount, by check
      or by
      wire transfer), or (III) contest that the Indemnified Party is entitled to
      receive any of the damages claimed and a reasonable explanation of the basis
      therefor. If the Indemnifying Party in such response contests the payment of
      all
      or part of the damages claimed, the Indemnifying Party and the Indemnified
      Party
      shall use good faith efforts to resolve such dispute. Any survival period time
      limitation specified in Section 9 below shall not apply to a Claim which
      has been the subject of notice from the Indemnified Party to the Indemnifying
      Party given prior to the expiration of such period. After such notice, if the
      Indemnifying Party shall acknowledge in writing to the Indemnified Party that
      the Indemnifying Party shall be obligated under the terms of its indemnity
      hereunder in connection with such lawsuit or action, then the Indemnifying
      Party
      shall be entitled, if it so elects, (i) to take control of the defense and
      investigation of such lawsuit or action (provided such defense and investigation
      are pursued in a diligent and professional manner); (ii) to employ and engage
      attorneys of its own choice to handle and defend the same, at the Indemnifying
      Party’s cost, risk, and expense unless the named parties to such action or
      proceeding include both the Indemnifying Party and the Indemnified Party and
      the
      Indemnified Party has been advised in writing by counsel that there may be
      one
      or more legal defenses available to such Indemnified Party that are different
      from or additional to those available to the Indemnifying Party; and (iii)
      to
      compromise or settle such claim, which compromise or settlement shall be made
      only with the written consent of the Indemnified Party, such consent not to
      be
      unreasonably withheld. In the event the Indemnifying Party does assume the
      defense of such Claim as provided above, the Indemnified Party shall have the
      right to fully participate in such defense (including engaging attorneys of
      its
      own choice), at its sole expense, and the Indemnifying Party (and its chosen
      attorneys) shall keep the Indemnified Party (and its attorneys) reasonably
      informed and shall reasonably cooperate with the Indemnified Party (and its
      attorneys) in connection with such participation. If the Indemnifying Party
      fails to assume the defense of such claim within 15 days after receipt of the
      notice of a Claim, the Indemnified Party against which such Claim has been
      asserted will (upon delivering notice to such effect to the Indemnifying Party)
      have the right to undertake, at the Indemnifying Party’s cost and expense, the
      defense, compromise or settlement of such Claim on behalf of and for the account
      and risk of the Indemnifying Party (which defense shall be pursued in a diligent
      and professional manner); provided, however, that such Claim shall not be
      compromised or settled without the written consent of the Indemnifying Party,
      which consent shall not be unreasonably withheld. In the event the Indemnified
      Party assumes the defense of the Claim, the Indemnified Party will keep the
      Indemnifying Party reasonably informed of the progress of any such defense,
      compromise or settlement. The Indemnifying Party shall be liable for any
      settlement of any action effected pursuant to and in accordance with this
      Section for any final judgment (subject to any right of appeal), and the
      Indemnifying Party agrees to indemnify and hold harmless an Indemnified Party
      from and against any damages by reason of such settlement or
      judgment.

     

    3.1.4. For
      purposes of this Section, including the determination of Claims by Buyer, any
      and all references to “material” limitations or limitations as to “knowledge” in
      Seller’s representations and warranties, while being taken into account for
      purposes of determining whether a breach has occurred giving rise to a Claim
      by
      Buyer for Adverse Consequences for which Buyer is to be indemnified, shall
      be
      disregarded for purposes of calculating the amount of said Claim.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    3.1.5. Neither
      party shall be required to indemnify the other party pursuant to this Section
      unless or until the aggregate monetary amount of Adverse Consequences exceeds
      $5,000.00 (the “Basket”) following which the Indemnifying Party shall be
      required to indemnify the Indemnified Party (subject to the Indemnity Cap)
      only
      for the monetary amounts of Adverse Consequences in excess of the
      Basket.

     

    3.1.6. Neither
      party shall be required to indemnify the other party for an aggregate amount
      of
      Adverse Consequences in excess of $450,000.00 (the “Indemnity
      Cap”).

     

    3.1.7. In
      no
      event shall the provisions of this Section in any way modify or otherwise limit
      the rights or remedies available to any of the parties with regard to a claim
      of
      fraud. The parties shall be entitled as a result of misrepresentation, breach
      or
      default under this Agreement, to pursue any and all non-monetary relief to
      which
      any of them may otherwise be entitled at law, in equity or
      otherwise.

     

    3.1.8. The
      amount of damages payable by an Indemnifying Party under this Section shall
      be
      (a) reduced by any insurance proceeds actually received by the Indemnified
      Party
      with respect to the claim for which indemnification is sought, (b) reduced
      by any amounts recovered from any third parties, by way of indemnification
      or
      otherwise, with respect to the claim for which indemnification is sought and
      (c)
      any tax benefits actually received by the Indemnified Party or for which the
      Indemnified Party is eligible on account of the matter resulting in such damages
      or the payment of such damages. Each Indemnified Party shall, as soon as is
      reasonably practicable and commercially feasible, make application for such
      insurance procedures referred to in clause (a) above. Except with regard to
      compensation for claims paid to third parties, damages payable by an
      Indemnifying Party under this Section shall not include punitive damages or
      any
      special or indirect damages or any damages that are consequential in nature
      such
      as lost profits, diminution in value, damage to reputation and the like.
Except
      as
      set forth in this Agreement, the Seller or the Buyer are not making any
      representation, warranty, covenant or agreement with respect to the matters
      contained herein. Provided
      that the Buyer has complied with all of the provisions of the this Section
      3,
      Buyer shall have the right to off-set or set-off any payment due pursuant to
      this Agreement against any other payment to be made pursuant to this Agreement
      or otherwise (including against indemnification payments).
      Except
      for breaches of Sections 1.2 or 1.7 by Buyer, indemnification under this Section
      shall be the exclusive means of recovery by either Buyer or Seller and, as
      applicable, its officers, directors and shareholders against the other party
      for
      any breach or violation, or alleged breach or violation, of the representations,
      warranties, covenants and agreements under this Agreement and shall be in lieu
      of any other common law or statutory rights or remedies. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4. Conditions
      to Closing 

     

    4.1. Seller’s
      Closing Condition.
      The
      Seller’s obligation to consummate the transactions contemplated hereby is
      subject to the satisfaction of the following conditions as of the Closing
      Date:

     

    4.1.1. No
      Litigation.
      No
      action or proceeding before a court or any other governmental agency or body
      shall have been instituted or threatened to stay, restrain or prohibit the
      consummation of the transactions contemplated hereby or to impose any remedy,
      condition or restriction unacceptable to the Seller in its sole
      discretion.

     

    4.1.2. Representations
      and Warranties; Performance of Obligations.
      All
      representations and warranties of the Buyer contained in this Agreement shall
      be
      true and correct in all material respects as of the Closing with the same force
      and effect as though made at and as of the Closing and all of the terms,
      covenants and conditions of this Agreement to be complied with, performed and
      satisfied by the Buyer at or before the Closing shall have been complied with,
      performed and satisfied in all material respects.

     

    4.1.3. Proceedings
      Satisfactory.
      All
      actions, proceedings, instruments and documents required to carry out this
      Agreement or incidental hereto shall be reasonably satisfactory to the Seller
      and its counsel.

     

    4.2. Buyer’s
      Conditions Precedent.
      The
      Buyer’s obligations hereunder are conditioned upon the following:

     

    4.2.1. No
      Litigation.
      No
      action or proceeding before a court or any other governmental agency or body
      shall have been instituted or threatened to stay, restrain or prohibit the
      consummation of the transactions contemplated hereby or to impose any remedy,
      condition or restriction unacceptable to the Buyer in its sole
      discretion.

     

    4.2.2. Representations
      and Warranties; Performance of Obligations.
      All
      representations and warranties of the Seller contained in this Agreement shall
      be true and correct in all material respects as of the Closing Date with the
      same force and effect as though made at and as of the Closing Date and all
      of
      the terms, covenants and conditions of this Agreement to be complied with,
      performed and satisfied by the Seller at or before the Closing Date shall have
      been complied with, performed and satisfied in all material
      respects.

     

    4.2.3. Proceedings
      Satisfactory.
      All
      actions, proceedings, instruments and documents required to carry out this
      Agreement or incidental hereto shall be reasonably satisfactory to the Buyer
      and
      its counsel.

     

    4.2.4. Consents.
      On or
      prior to the Closing Date, the Buyer shall have been provided a copy of the
      following in a form satisfactory to Buyer:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (a) Executed
      written consent from Becton Dickinson assigning, effective as of the Closing
      Date, to Buyer that certain License Agreement between Becton Dickinson and
      Seller dated April 5, 2004 and confirming that any and all of Seller’s
      obligations thereunder have been satisfied in full. 

     

    (b) Executed
      written consent from Cedars Sinai Medical Center (i) assigning, effective as
      of
      the Closing Date, to Buyer that certain License Agreement between Cedars Sinai
      Medical Center and Seller, dated June 29, 2001 and (ii) confirming that,
      effective as of the Closing Date, any and all of Seller’s obligations under such
      agreement, including without limitation Schedule D, have been satisfied in
      full
      and that Section 4.4 of such agreement is deleted in its entirety and shall
      be
      of no further force or effect.

     

    (c) Executed
      written consent from Cedars Sinai Medical Center assigning, effective as of
      the
      Closing Date, to Buyer that certain License Agreement between Cedars Sinai
      Medical Center and Seller, dated August 1, 1999
      and
      confirming that any and all Seller’s obligations thereunder (other than
      royalties arising after the Closing Date) have been satisfied in
      full.

     

    (d) Executed
      written consent from Circe Biomedical, Inc. (fka W.R. Grace & Co-Conn)
      assigning, effective as of the Closing Date, to Buyer that certain Royalty
      Agreement by and between Circe Biomedical, Inc. and Seller dated as of January
      29, 1999 and confirming that any and all Seller’s obligations thereunder (other
      than royalties arising after the Closing Date) have been satisfied in
      full.

     

    (e) Executed
      assignment of inventions agreement by and between Shawn Cain and the Buyer
      with
      respect to the patent claims set forth on Schedule 1.1(a), and best efforts
      to
      obtain, within a reasonable period of time after the Closing, an executed
      assignment of inventions agreement with Barbara Chandler.

     

    (f) Written
      acknowledgement from RanD/Medtronic and Gianni Bellini that all rights of Seller
      in and to the HepatAssist hardware platform, including without limitation any
      software and firmware contained therein or used in connection therewith, have
      been transferred to Buyer and that RanD/Medtronic and Gianni Bellini will use
      good faith efforts to negotiate and enter into a written agreement with Buyer
      promptly after the Closing Date to continue development of the HepatAssist
      hardware and software platform on behalf of Buyer.

                                                 
      

    5. Confidentiality.
      

     

    5.1. Each
      party may disclose or may have disclosed (the “Disclosing
      Party”)
      to
      another party (the “Receiving
      Party”)
      certain information that the Disclosing Party considers to be confidential
      and/or proprietary, including, but not limited to, personally identifiable
      information and data entered, the terms and conditions of this Agreement (except
      as permitted in Section 9.3 below) technical processes and formulas, product
      designs, customer lists, product and business plans, revenues, projections,
      marketing and other data, sales, cost, accounting and other technical, business
      and financial information, as well as information that the Disclosing Party
      marks as confidential (collectively, “Confidential
      Information”).
      Notwithstanding the foregoing, Confidential Information does not include
      information (i) already known by the Receiving Party without an obligation
      of
      confidentiality, (ii) publicly known or which becomes publicly known
      through no omission or unauthorized act of the Receiving Party, (iii) rightfully
      received from a third party without any obligation of confidentiality, or (iv)
      independently developed by the Receiving Party without use of the Disclosing
      Party’s Confidential Information. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    5.2. The
      Receiving Party shall make use of the Confidential Information only for the
      purposes of this Agreement and shall protect the Disclosing Party’s Confidential
      Information by using the same degree of care, but not less than a reasonable
      degree of care, to prevent the unauthorized access, use, dissemination, or
      publication of the Confidential Information as the Receiving Party uses to
      protect its own Confidential Information of a like nature. The Receiving Party
      shall disclose Confidential Information only (i) to those of its employees,
      contractors, representatives and consultants with a need to know such
      Confidential Information who have first agreed with the Receiving Party, either
      as a condition of employment or engagement, or in order to obtain the
      Confidential Information, to be bound by terms and conditions substantially
      similar to those contained in this Section 4, (ii) as required by court order,
      law or regulation or as requested by any regulatory agency or governmental
      body
      having jurisdiction over the Receiving Party, provided that prior to such
      disclosure the Receiving Party shall provide prompt written notice to the
      Disclosing Party sufficient to permit the Disclosing Party the opportunity
      to
      oppose the disclosure and the Receiving Party shall take all reasonable steps
      available to maintain the Confidential Information in confidence, or (iii)
      to
      make appropriate disclosure regarding the tax treatment and tax structure of
      the
      transactions contemplated hereby.

     

    5.3. All
      Confidential Information shall remain the property of the Disclosing Party,
      and
      such Confidential Information and all copies thereof (if any), shall be promptly
      returned to the Disclosing Party upon request or upon termination of this
      Agreement or, at the Disclosing Party’s sole option, destroyed, in which case
      the Disclosing Party shall be notified promptly in writing when its Confidential
      Information has been destroyed. The furnishing of any Confidential Information
      between the parties shall not constitute the granting of any right or license
      to
      use such Confidential Information. 

     

    5.4. The
      obligations of the parties set forth in this Section 4 shall remain in effect
      for three years after the date of this Agreement.

     

    5.5. Notwithstanding
      any other provision in this Section 4 to the contrary, the Buyer shall be
      permitted after the Closing to use and disclose any Confidential Information
      received from the Seller and included in the Acquired Assets to the extent
      the
      Buyer in its sole discretion determines that it is necessary or appropriate
      to
      use or disclose that Confidential Information in order to carry out any of
      the
      Buyer’s commercial activities through the use of any of the Acquired Assets.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    6. Failure
      to Pay the Contingent Cash Purchase Price.
      If the
      Buyer fails to pay to the Seller the Deferred Cash Purchase Price on or prior
      to
      the eighteen month anniversary of the Closing Date, then in addition to any
      other remedies available to the Seller at law or in equity, the Seller shall
      have the right to require the Buyer to re-convey the Acquired Assets to the
      Seller to the Seller without the refund or return by the Seller of any portion
      of the Purchase Price. Upon exercise of the foregoing right by the Seller,
      the
      Buyer shall execute and deliver to the Seller such instruments of conveyance
      and
      assignment and other documents, and shall take all other actions, as the Seller
      and its counsel may deem reasonably necessary to vest in Seller the right,
      title
      and interest in and to the Acquired Assets. The Buyer and the Seller agree
      that
      the Seller would be damaged irreparably in the event that the provisions of
      this
      Section are not performed by the Buyer in accordance with its specific terms.
      Accordingly, the Buyer and the Seller agree that, without posting bond or other
      undertaking, the Seller will be entitled to an injunction or injunctions to
      prevent breaches or violations of the provisions of this Section and to enforce
      specifically the terms of this Section in any action instituted in any court
      of
      the United States or any state hereof having jurisdiction over the Parties
      and
      the matter in addition to any other remedy which it may be entitled, at law
      or
      in equity. The Buyer further agrees that, in the event of any action for
      specific performance in respect of such breach or violation, it will not assert
      the defense that a remedy at law would be adequate. Notwithstanding the
      foregoing, the Buyer may withhold from the Deferred Cash Purchase Price payable
      to Seller any amounts due or payable to Buyer under Section 3
      (Indemnification).

     

    7. Notices.
      Any
      notice or communication required or permitted to be delivered to any party
      under
      this Agreement shall be in writing and shall be deemed properly delivered,
      given
      and received when delivered (by hand, by registered mail, by courier or express
      delivery service or by fax) to the address or fax number set forth beneath
      the
      name of such party below (or to such other address or fax number as such party
      shall have specified in a written notice given to the other parties
      hereto):

    

      
        	
                If
                  to the Seller:

              	
                Arbios
                  Systems, Inc.

              
	 	
                200
                  E. Del Mar Blvd., Suite 320

              
	 	
                Pasadena,
                  CA91105

              
	 	
                Attn: 
                  Shawn Cain, Interim President & CEO

              
	 	
                Fax:  (626)
                  356-3107

              
	 	 
	
                With
                  a copy to:

              	
                TroyGould
                  PC

              
	 	
                1801
                  Century Park East, 16th Floor

              
	 	
                Los
                  Angeles, CA 90067

              
	 	
                Attn:  Istvan
                  Benko

              
	 	
                Fax:  
                  (310) 201-4746

              
	 	 
	
                If
                  to Buyer to:

              	
                HepaLife
                  Technologies, Inc.

              
	 	
                60
                  State Street, Suite 700

              
	 	
                Boston,
                  MA 02109

              
	 	
                Attn: 
                  Frank Menzler, President, CEO & Chairman

              
	 	
                Fax:   617-371-2950

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      
        	
                With
                  a copy to:

              	
                Muto
                  Advisors P.C.

              
	 	
                125
                  Main Street

              
	 	
                Charlestown,
                  MA 02129

              
	 	
                Attn:
                   Jennifer Muto

              
	 	
                Fax: 
                  (801) 672-6868

              

      

    

    

    8. Termination,
      Survival of Representations, Warranties and Covenants; Etc.
      All
      representations, warranties, covenants, agreements and indemnities contained
      in
      this Agreement shall survive for a period of twelve (12) months following the
      date of the Closing. In no event shall the liability of the Seller for breaches
      of representations, warranties and covenants hereunder exceed an aggregate
      amount equal to the cash portion of the Purchase Price actually received by
      the
      Seller. Any claim for any breach or violation of any representation, warranty
      or
      covenant herein or otherwise relating hereto (other than any claim under Section
      5 or any claim regarding the payment of the Deferred Cash Purchase Price) must
      be made, if at all, on or prior to the date which is twelve (12) months after
      the Closing Date or it shall be thereafter barred.

     

    9. Miscellaneous.
      

     

    9.1. Governing
      Law; Jurisdiction.
      This
      Agreement was executed in, and the transactions contemplated by and the
      provisions of this Agreement shall be governed by and construed in accordance
      with the laws of The Commonwealth of Massachusetts without giving effect to
      the
      conflict of laws provisions thereof; and both parties consent to the
      jurisdiction of the state and federal courts sitting in
      Massachusetts.

     

    9.2. Expenses.
      Each
      party to this Agreement shall be responsible for its own expenses incurred
      in
      connection with this Agreement and the transactions contemplated hereby and
      Buyer shall be responsible for (a) all filing and recordation fees relating
      to
      the transfer of the Acquired Assets hereunder; and (b) all fees, costs and
      expenses relating to the shipment, transfer or delivery of all tangible assets
      included in the Acquired Assets from their respective locations on the Closing
      Date to such location or locations as Buyer may determine.

     

    9.3. Publicity;
      SEC Filings.
      Each
      Party may issue a press release announcing the execution of this Agreement
      and
      the proposed transaction. Each party shall provide a draft of such press release
      to the other Party no less than 24 hours before the issuance of such press
      release. If required by the rules and regulations of the SEC, either Party
      hereto may publicly disclose the existence of this Agreement and the terms
      hereof in a current report or a periodic report filed with the SEC, provided
      that the filing party shall provide the other party with a draft copy of the
      report no less than 24 hours before the anticipated filing date. In the event
      that a Party intends to issue a press release or files a report with the SEC
      regarding this Agreement and the transactions contemplated hereby, the filing
      party shall duly consider the comments of the other party.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    9.4. Entire
      Agreement; Third Party Beneficiaries; Assignment; Etc.
      This
      Agreement, including all exhibits and schedules attached hereto, constitutes
      and
      contains the entire agreement of the Parties and supersedes any and all prior
      negotiations, correspondence, understandings and agreements between the Parties
      respecting the subject matter hereof. This Agreement is not intended to confer
      upon any person other than the Parties to this Agreement any rights or remedies.
      The Buyer may not assign its rights or obligations under this Agreement without
      the prior written consent of the Seller (not to be unreasonably withheld),
      and
      the Seller may not assign its rights or obligations under this Agreement without
      the prior consent of the Buyer (not to be unreasonably withheld); provided,
      however, that the Seller may assign, distribute or otherwise transfer its rights
      relating to the Note and the Deferred Cash Purchase Price without the consent
      of
      the Buyer; and provided, further that any person or entity that acquires the
      Buyer or all or substantially all of the Acquired Assets after the Closing
      Date
      must agree in writing to assume the obligation to pay the Deferred Cash Purchase
      Price as if such person or entity were substituted for the Buyer therein (but
      no
      such assignment and assumption shall relieve the Buyer of such obligation
      without the Seller’s written consent). In addition, the Buyer shall be permitted
      to assign and transfer the Acquired Assets to a wholly-owned subsidiary of
      the
      Buyer, provided, however, that such assignee shall agree with the Seller, in
      writing, to assume the obligations of the Buyer hereunder on a joint and several
      basis and the Buyer shall not thereby be relieved of its obligations
      hereunder.

     

    9.5. No
      Liability of Officers and Directors.
      The
      parties hereto acknowledge that the individuals executing this Agreement on
      behalf of the Seller and the Buyer do so on behalf of such entities and not
      in
      their individual capacities. As such no officer, director, employee or agent
      of
      the Seller or the Buyer shall have any liability hereunder.

     

    9.6. Counterparts.
      This
      Agreement may be executed in two or more counterparts and shall be effective
      when each party has executed at least one of the counterparts even though all
      Parties have not executed the same counterpart. The Parties may execute this
      Agreement and all other agreements, certificates, instruments and other
      documents contemplated by this Agreement and exchange on the Closing Date
      counterparts of such documents by means of facsimile transmission and the
      Parties agree that the receipt of such executed counterparts shall be binding
      on
      such Parties and shall be construed as originals. After the Closing the Parties
      shall promptly exchange original versions of this Agreement and all other
      agreements, certificates, instruments and other documents contemplated by this
      Agreement that were executed and exchanged by facsimile transmission pursuant
      to
      this Section.

     

    9.7. Other
      Prospective Purchasers.
      Buyer
      shall not incur any liability in connection with the transactions contemplated
      by this Agreement to any other person with whom Seller, or its agents or
      representatives, have had negotiations or discussions regarding any potential
      merger, sale or exchange of capital stock or other business combination
      involving the Seller or any proposal or offer to acquire in any manner a
      substantial equity interest in the Seller or all or a substantial portion of
      the
      assets of the Seller.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    9.8. Further
      Actions.
      From
      time to time, as and when requested by any party hereto, each other Party shall
      execute and deliver, or cause to be executed and delivered, such documents
      and
      instruments and shall take, or cause to be taken, such further or other actions
      as the requesting party may reasonably deem necessary or desirable to carry
      out
      the intent and purposes of this Agreement, to transfer, assign and deliver
      the
      Acquired Assets to the Buyer effective as of the Closing Date (or to evidence
      the foregoing) and to consummate and give effect to the other transactions,
      covenants and agreements contemplated hereby. The Seller acknowledges and agrees
      that from and after the Closing Date, Buyer shall be entitled to possession
      of
      all documents, books, records, agreements and financial data of any sort
      relating to the Acquired Assets. Without limiting the generality of the
      foregoing, the Seller and the Buyer shall cooperate fully with each other after
      the Closing Date so that each party has access to the business records,
      contracts and other information existing as of the Closing Date and relating
      in
      any manner to the Acquired Assets. No files, books or records existing as of
      the
      Closing Date and relating in any manner to the Acquired Assets shall be
      destroyed by any party for a period of 3 years after the Closing Date
      without giving the other party at least 30 days’ prior written notice,
      during which time such other party shall have the right to examine and to remove
      any such files, books and records prior to their destruction. The access to
      files, books and records contemplated herein shall be during normal business
      hours and upon not less than 2 days’ prior written request, shall be
      subject to such reasonable limitations as the party having custody or control
      thereof may impose to preserve the confidentiality of information contained
      therein and shall not extend to material subject to a claim of privilege unless
      expressly waived by the party entitled to claim the same.

     

    9.9. Attorneys
      Fees.
      If
      either party shall commence an action or proceeding to enforce any provisions
      of
      this Agreement, then the prevailing party in such action or proceeding shall
      be
      reimbursed by the other party for its reasonable attorneys’ fees and other costs
      and expenses incurred in the investigation, preparation and prosecution of
      such
      action or proceeding.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, this Agreement has been executed under seal as of the date
      first written above.

    
 

    
      
        	
                SELLER:

              	
                ARBIOS
                  SYSTEMS, INC.

              
	 	 
	 	 
	 
                	
                By:

              	
                  
                  /s/ SHAWN CAIN

              	 
	 	 	
                Name:
                  Shawn Cain

              
	 	 	
                Title:
                  Interim President and Interim Chief Executive Officer

              
	 	 
	 	 
	
                BUYER:

              	
                HEPALIFE
                  TECHNOLOGIES, INC.

              
	 	 
	 	 
	 
                	
                By:

              	
                  
                  /s/ FRANK MENLER

              	 
	 	 	
                Name:
                  Frank Menzler

              
	 	 	
                Title:
                  President, Chief Executive Officer and
                  ChairmanExhibit
      10.2

     

    Compensation
      Agreement

    

    The
      following sets forth the terms and conditions of a compensation agreement,
      effective as of October 1, 2008, to be entered into by Arbios Systems Inc.,
      a
      Delaware corporation (”Arbios”), and Shawn Cain, , (the “Consultant”).

    

    Statement
      of Work:

    

    The
      Consultant will during the Term (as hereinafter defined) market and make
      recommendations to the Board of Directors of Arbios for the sale, license and/or
      financing of SEPET and/or HepatAssist, and the intellectual property and
      equipment related thereto. The Term shall be from October 1, 2008 through and
      including December 31, 2008, unless earlier terminated by either the Consultant
      or Arbios upon thirty (30) days’ prior written notice to the other party. The
      following actions will be performed:

    

    
      	 	
              §

            	
              Identify
                and engage prospective purchasers, licensors and investors and negotiate
                closure of such transactions. 

            

    

    
      	 	
              §

            	
              Sell
                or dispose Arbios’ equipment and inventory to maximize
                proceeds.

            

    

    
      	 	
              §

            	
              Recommend
                appropriate legal actions to reasonably maintain Arbios’ intellectual
                property portfolio.

            

    

    
      	 	
              §

            	
              Work
                closely and provide reports to the Board of Directors of all such
                efforts.
                

            

    

    
      	 	
              §

            	
              Take
                such other actions as reasonably requested by the Arbios Board which
                are
                consistent with and for the purpose of implementing the transactions
                contemplated hereby.

            

    

    

    Proceeds:

    

    Proceeds
      is defined to mean all cash proceeds realized from the sale, licensure and/or
      financing of Arbios’ assets and collected from all purchasers and licensors
      identified by and with whom substantive discussions were carried on by the
      Consultant during the Term. At the end of the Term, the Consultant will provide
      a list of purchasers and licensors with whom substantive discussions were
      carried on by the Consultant.

    

    “Expenses”
      will not exceed $25,000 and will only include payments made for the following
      services:

    

    
      	 	
              §

            	
              Equipment
                auction

            

    

    
      	 	
              §

            	
              Travel

            

    

    
      	 	
              §

            	
              IT
                equipment consultant

            

    

    
      	 	
              §

            	
              Telephone
                & utilities

            

    

    
      	 	
              §

            	
              Expenses
                incidental to any asset sales, lease or
                license

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    the
      Consultant will use, at no charge to Arbios, his home office space to conduct
      business on Arbios’ behalf. Payment for the Expenses and any other reasonable
      and documented expenses are the responsibility of Arbios.

    

    Base
      Compensation: 

    

    Throughout
      the Term, the Consultant will receive $10,000 per month plus payment of medical
      insurance, estimated to be $1,500 per month.

    

    Payments
      will be made to the extent Arbios has sufficient liquidity on hand. The
      determination of liquidity shall be made from time to time by the Arbios Board
      of Directors. Any payments not made in a timely manner hereunder shall be made
      at such time as there is sufficient liquidity to make such payments as
      determined as provided for herein.

    

    Additional
      Incentive Commission Structure:

    

    Sale,
      licensure or financing of HepatAssist and related intellectual patent portfolio
      and equipment (“HepaAssist Assets”):

     

    If
      the
      sale of the HepatAssist Assets to HepaLife, as currently contemplated in the
      draft Letter of Intent attached hereto, is completed by October 10, 2008, the
      Consultant will receive a bonus of $20,000. If the aforementioned transaction
      is
      completed after October 10, 2008 but on or before October 31, 3008, then the
      Consultant will receive a $10,000 bonus.

    

    If
      the
      Consultant sells, licenses or finances the HepatAssist Assets through a third
      party(s) other then HepaLife, and the transaction closes prior to October 31,
      2008, the Consultant will receive a cash bonus equal to 10% of the Proceeds
      received by the Company at the closing of the transaction, with such amount
      not
      to exceed $50,000.

    If
      the
      Consultant sells, licenses or finances the HepatAssist Assets through a third
      party(s) other then HepaLife, and the transaction closes prior to November
      30,
      2008, the Consultant will receive a cash bonus equal to 5% of the Proceeds
      received by the Company at the closing of the transaction, with such amount
      not
      to exceed $50,000.

    

    Sale,
      licensure or financing of SEPET and related intellectual patent portfolio and
      equipment (“SEPET Assets”):

    

    If
      the
      Consultant sells, licenses or finances the SEPET Assets and the transaction
      closes prior to December 31, 2008, the Consultant will receive a cash bonus
      to
      be awarded in the sole discretion of the Board after taking into account the
      timing, size and structure of the transaction. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Miscellaneous:

    

    
      	 	
              §

            	
              If
                any term or other provision of this term sheet is invalid, illegal
                or
                incapable of being enforced by virtue of any law, or public policy,
                all
                other conditions and provisions of this term sheet shall nevertheless
                remain in full force and effect so long as the economic or legal
                substance
                of the transactions contemplated hereby is not affected in any manner
                adverse to any party. Upon such determination that any term or other
                provision is invalid, illegal or incapable of being enforced, the
                parties
                hereto shall negotiate in good faith to modify this term sheet so
                as to
                effect the original intent of the parties as closely as possible
                in an
                acceptable manner to the end that the transactions contemplated hereby
                are
                fulfilled to the maximum extent
                possible

            

    

     

    Witness
      whereof, the parties have executed this Compensation Agreement on the date
      below

    

    
      	
              Dated:

            	Arbios
              Systems, Inc.,
	 	 	 
	 	 	 
	 	By:  	
              /s/
                THOMAS
                TULLY                                        

            
	 	 	
              Thomas
                Tully

            
	 	 	
              Compensation
                Committee Chairman

            

    

    

    Shawn
      Cain

    

    By:
      /s/
      SHAWN CAIN

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}]]