exv10w8



 





Exhibit 10.8




EXECUTION COPY




SERIES A CONVERTIBLE PREFERRED STOCK




AND




WARRANT PURCHASE AGREEMENT




 




Dated as of December 27, 2007




among




NOVARAY MEDICAL, INC.




and




THE PURCHASERS LISTED ON EXHIBIT A




 









 





TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	PAGE	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE I Purchase and Sale of Preferred Stock; Escrow	 	 	2	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 1.1	 	Purchase and Sale of Stock	 	 	2	 
	 
	 	Section 1.2	 	Warrants	 	 	2	 
	 
	 	Section 1.3	 	Lead Investor Warrants	 	 	2	 
	 
	 	Section 1.4	 	NovaRay Note Holders	 	 	2	 
	 
	 	Section 1.5	 	Conversion Shares	 	 	3	 
	 
	 	Section 1.6	 	Purchase Price and Closings	 	 	3	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE II Representations and Warranties	 	 	4	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 2.1	 	Representations and Warranties of the Company	 	 	4	 
	 
	 	Section 2.2	 	Representations, Warranties and Covenants of the Purchasers	 	 	14	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE III Covenants	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 3.1	 	Securities Compliance	 	 	17	 
	 
	 	Section 3.2	 	Registration and Listing	 	 	17	 
	 
	 	Section 3.3	 	Inspection Rights	 	 	18	 
	 
	 	Section 3.4	 	Compliance with Laws	 	 	18	 
	 
	 	Section 3.5	 	Keeping of Records and Books of Account	 	 	18	 
	 
	 	Section 3.6	 	Reporting Requirements	 	 	18	 
	 
	 	Section 3.7	 	Amendments	 	 	19	 
	 
	 	Section 3.8	 	Other Agreements	 	 	19	 
	 
	 	Section 3.9	 	Distributions	 	 	19	 
	 
	 	Section 3.10	 	Use of Proceeds	 	 	19	 
	 
	 	Section 3.11	 	Reservation of Shares	 	 	19	 
	 
	 	Section 3.12	 	Transfer Agent Instructions	 	 	19	 
	 
	 	Section 3.13	 	Disposition of Assets	 	 	20	 
	 
	 	Section 3.14	 	Reporting Status	 	 	20	 
	 
	 	Section 3.15	 	Disclosure of Transaction	 	 	20	 
	 
	 	Section 3.16	 	Disclosure of Material Information	 	 	21	 
	 
	 	Section 3.17	 	Pledge of Securities	 	 	21	 
	 
	 	Section 3.18	 	Form SB-2 Eligibility	 	 	21	 
	 
	 	Section 3.19	 	Lock-Up Agreement	 	 	21	 
	 
	 	Section 3.20	 	DTC	 	 	21	 
	 
	 	Section 3.21	 	Sarbanes-Oxley Act	 	 	21	 
	 
	 	Section 3.22	 	No Commissions in connection with Conversion of Preferred Shares	 	 	21	 






 









 






	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	PAGE	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IV Conditions	 	 	22	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 4.1	 	Conditions Precedent to the Obligation of the Company to Sell the Shares	 	 	22	 
	 
	 	Section 4.2	 	Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares	 	 	22	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE V Stock Certificate Legend	 	 	25	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 5.1	 	Legend	 	 	25	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VI Indemnification	 	 	26	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 6.1	 	Indemnification of Purchasers	 	 	26	 
	 
	 	Section 6.2	 	Indemnification Procedure	 	 	26	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VII Miscellaneous	 	 	27	 
	 
	 	 	 	 	 	 	 	 
	 
	 	Section 7.1	 	Fees and Expenses	 	 	27	 
	 
	 	Section 7.2	 	Specific Enforcement, Consent to Jurisdiction.	 	 	27	 
	 
	 	Section 7.3	 	Entire Agreement; Amendment	 	 	28	 
	 
	 	Section 7.4	 	Notices	 	 	28	 
	 
	 	Section 7.5	 	Rescission and Withdrawal Right	 	 	29	 
	 
	 	Section 7.6	 	Waivers	 	 	29	 
	 
	 	Section 7.7	 	Headings	 	 	29	 
	 
	 	Section 7.8	 	Successors and Assigns	 	 	29	 
	 
	 	Section 7.9	 	No Third Party Beneficiaries	 	 	29	 
	 
	 	Section 7.10	 	Governing Law	 	 	30	 
	 
	 	Section 7.11	 	Survival	 	 	30	 
	 
	 	Section 7.12	 	Counterparts	 	 	30	 
	 
	 	Section 7.13	 	Publicity	 	 	30	 
	 
	 	Section 7.14	 	Severability	 	 	30	 
	 
	 	Section 7.15	 	Further Assurances	 	 	30	 
	 
	 	Section 7.16	 	Break-Up Fee	 	 	30	 






EXHIBITS




	 	 	 
	A.
	 	Purchasers and Amounts
	B.
	 	Form of Certificate of  Designation
	C-1.
	 	Form of Series A Warrant
	C-2.
	 	Form of Series J Warrant
	C-3.
	 	Form of Series J-A Warrant
	D.
	 	Form of Registration Rights Agreement
	E.
	 	Form of Lock-Up Agreement
	F.
	 	Form of Irrevocable Transfer Agent Instructions
	G.
	 	Form of Opinion of Counsel







 











 





SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE

AGREEMENT




     This SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the
“Agreement”) is dated as of December 27, 2007 by and among NovaRay Medical, Inc., a
Delaware Corporation (the “Company”), and each of the Purchasers of shares of Series A
Convertible Preferred Stock and Warrants of the Company whose names are set forth on Exhibit
A hereto (individually, a “Purchaser” and collectively, the “Purchasers”).



RECITALS




     WHEREAS, the Company, Vision Acquisition Subsidiary, Inc. a Delaware Corporation and a
wholly-owned subsidiary of the Company (“Merger Sub”) and NovaRay, Inc., a Delaware
corporation (“NovaRay”) are parties to a merger agreement (the “Merger Agreement”),
pursuant to which the Merger Sub will merge with and into NovaRay, with NovaRay remaining as the
surviving entity after the merger (the “Merger”) whereby the stockholders of NovaRay will
receive common stock of the Company in exchange for their capital stock of NovaRay;



     WHEREAS, the closing of the Merger is a condition to the Initial Closing as described herein;



     WHEREAS, concurrently with the closing of the Merger, the Purchasers desire to complete a
private placement financing of not less than $10,000,000.00 (not including conversion of the
NovaRay Notes as described below) (the “Financing”) whereby the Company will issue to the
Purchasers, and the Purchasers will purchase from the Company, the Preferred Shares and Warrants
(as such terms are defined in Sections 1.1 and 1.3 below) on the terms and
conditions set forth in this Agreement;



     WHEREAS, each of the NovaRay Note Holders (as defined in Section 1.4 below) holds a
promissory note previously issued by NovaRay in the principal amount set forth beneath the caption
“NovaRay Note Principal Amount” opposite such NovaRay Note Holder’s name on Exhibit
A attached hereto that is convertible into securities of NovaRay (the “NovaRay Notes”);
and



     WHEREAS, as a material inducement to the Company consummating the Merger and the Purchasers
purchasing the Preferred Shares and the Warrants in the Financing, each of the NovaRay Note Holders
has agreed to cancel its NovaRay Note in exchange for the issuance by the Company to such NovaRay
Note Holder of Preferred Shares and Series A Warrants (as such terms are defined in Sections
1.2) in accordance with the terms and conditions set forth in this Agreement.



     NOW, THEREFORE, in consideration of the covenants, promises and representations set forth
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:



1









 





ARTICLE I




Purchase and Sale of Preferred Stock; Escrow




     Section 1.1 Purchase and Sale of Stock. Upon the following terms and conditions, the
Company shall issue and sell to the Purchasers and each of the Purchasers shall purchase from the
Company the number of shares (the “Preferred Shares”) of the Company’s Series A Convertible
Preferred Stock, par value $0.0001 per share (the “Preferred Stock”), at a purchase price
of $2.67 per Preferred Share, convertible into shares of the Company’s common stock, par value
$0.0001 per share (the “Common Stock”), set forth opposite such Purchaser’s name on
Exhibit A hereto. The designation, rights, preferences and other terms and provisions of
the Series A Convertible Preferred Stock are set forth in the Certificate of Designation of the
Relative Rights and Preferences of the Series A Convertible Preferred Stock attached hereto as
Exhibit B (the “Certificate of Designation”). The Company and the Purchasers are
executing and delivering this Agreement in accordance with and in reliance upon the exemption from
securities registration afforded by Rule 506 of Regulation D (“Regulation D”), as
promulgated by the United States Securities and Exchange Commission (the “Commission”),
under the Securities Act of 1933, as amended (the “Securities Act”), or Section 4(2) of the
Securities Act.



     Section 1.2 Warrants. Upon the following terms and conditions and for no additional
consideration, each of the Purchasers shall be issued a warrant, in substantially the form attached
hereto as Exhibit C-1, to purchase one-third (1/3) of a share of Common Stock for every
Preferred Share purchased, rounded down to the nearest whole share, as set forth opposite such
Purchaser’s name on Exhibit A hereto (the “Series A Warrants”).



     Section 1.3 Lead Investor Warrants. Upon the following terms and conditions and for
no additional consideration, Vision Opportunity Master Fund, Ltd. (the “Lead Investor”)
shall also be issued (i) a warrant, in substantially the form attached hereto as Exhibit
C-2, to purchase up to that number of shares of Preferred Stock determined by dividing the
aggregate purchase price paid for the Preferred Shares issued to the Lead Investor pursuant to
Section 1.1 above by $4.33, as set forth opposite the Lead Investor’s name on Exhibit
A hereto (the “Series J Warrant”), and (ii) a Series J-A Warrant, in substantially the
form attached hereto as Exhibit C-3 (the “Series J-A Warrant” and, together with
the Series A Warrants and the Series J Warrant, the “Warrants”), to purchase up to a number
of shares of Common Stock equal to thirty-three and one-third percent (33-1/3%) of the number of
Preferred Shares actually purchased by the Lead Investor pursuant to exercises of its Series J
Warrant, rounded down to the nearest whole share; provided, however, that in the
event that the Lead Investor does not exercise the Series J Warrant at all prior to its expiration
date, the Series J-A Warrant shall terminate immediately and be of no further force or effect. The
Series A Warrants shall expire five (5) years following the Initial Closing Date, the Series J
Warrant issued to the Lead Investor shall expire twelve (12) months following the Initial Closing
Date and the Series J-A Warrants issued to the Lead Investor shall expire five (5) years following
the date of exercise of the Series J Warrant. Each of the Warrants shall have an exercise price
per share equal to its respective Warrant Price (as defined in the applicable Warrant).



     Section 1.4 NovaRay Note Holders. Subject to the terms and conditions of this
Agreement, at the Initial Closing (as defined below), the Company shall issue and deliver to each



2









 




Purchaser who is a holder (each a “NovaRay Note Holder” and collectively the
“NovaRay Note Holders”) of a NovaRay Note or NovaRay Notes in the aggregate principal
amount plus accrued interest through November 15, 2007 as set forth opposite such NovaRay Note
Holder’s name on Exhibit A hereto, the Preferred Shares and Series A Warrants against
delivery by such NovaRay Note Holder to the Company of evidence of cancellation of the NovaRay Note
in a form reasonably acceptable to the Company. In addition, within five (5) days of the Initial
Closing, the Company will deliver to each NovaRay Note Holder a cash payment equal to the amount of
interest accrued on the NovaRay Note between November 15, 2007 and the Initial Closing which is
listed beneath the caption “Interest Payment” opposite such NovaRay Note Holder’s name on
Exhibit A attached hereto (the “Accrued Interest Payment”).




     Section 1.5 Conversion Shares. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar contractual rights of
stockholders, a number of shares of Common Stock equal to one hundred ten percent (110%) of the
number of shares of Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Preferred Shares (including those underlying the Series J Warrant) and exercise of
all of the Warrants then outstanding. Any shares of Common Stock issuable upon conversion of the
Preferred Shares or the Underlying Preferred Shares (and such shares when issued) are herein
referred to as the “Conversion Shares”. Any shares of Common Stock issuable upon exercise
of the Warrants or any shares of Preferred Stock issuable upon exercise of the Warrants (the
“Underlying Preferred Shares”) (and such shares of Common Stock and/or Underlying Preferred
Shares when issued) are herein referred to as the “Warrant Shares”. The Preferred Shares,
the Conversion Shares and the Warrant Shares are sometimes collectively referred to as the
“Shares”.



     Section 1.6 Purchase Price and Closings. In consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this Agreement, the
Company agrees to issue and sell to the Purchasers and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this Agreement, the
Purchasers, severally but not jointly, agree to purchase the numbers of Preferred Shares and
Warrants set forth opposite their respective names on Exhibit A. The minimum purchase
price paid at the Initial Closing (as defined below) will be $10,000,000 (excluding any Purchase
Price paid by cancellation of the NovaRay Notes) and the maximum aggregate purchase price paid at
all closings (including by cancellation of the NovaRay Notes) will be $20,174,399.85 (the aggregate
of all such purchase prices paid at any Closing, the “Purchase Price”). The Preferred
Shares and Warrants shall be sold and funded in separate closings (each, a “Closing”), in
each case pursuant to terms of this Agreement and provided that each Purchaser executes a
signature page hereto and to each of the other Transaction Documents (as defined in Section
2.1(b) hereof) to which the Purchasers are a party, and thereby agrees to be bound by and
subject to the terms and conditions hereof and thereof. All additional new Purchasers and all
additional Preferred Shares and Warrants to be purchased hereunder shall be reflected on
Exhibit A, which shall automatically be amended without any further action by any party
hereto. The initial Closing under this Agreement (the “Initial Closing”) shall take place
on or about December 27, 2007, or as soon thereafter as the Company has identified Purchasers to
invest at least $10,000,000 and all other conditions to closing have been satisfied or waived (the
“Initial Closing Date”). Each subsequent Closing under this Agreement (each, a
“Subsequent Closing”) shall take place upon the mutual agreement of the Company and the
Purchasers participating in such Subsequent



3









 




Closing, but in no event later than forty-five (45) days from the Initial Closing Date (each,
a “Subsequent Closing Date”). The Initial Closing Date and each Subsequent Closing Date are
sometimes referred to in this Agreement as the “Closing Date”. Each Closing under this
Agreement shall take place at the offices of Morrison & Foerster LLP, 755 Page Mill Road, Palo
Alto, California 94304, at 10:00 a.m., New York time, or at such other time and place as may be
mutually agreed upon. Subject to the terms and conditions of this Agreement, at each Closing the
Company shall deliver or cause to be delivered to each Purchaser participating in such Closing (x)
a certificate for the number of Preferred Shares set forth opposite the name of such Purchaser on
Exhibit A hereto and (y) any other documents required to be delivered pursuant to
Article IV hereof. At each Closing, each Purchaser shall cause its Purchase Price to be
delivered by wire transfer to the Company. Notwithstanding the foregoing, in lieu of paying in
cash, the holders of the NovaRay Notes shall pay their respective portion of the Purchase Price
hereunder through the cancellation of such holders’ NovaRay Notes in the respective individual
amounts as listed under “NovaRay Note Principal Amount” opposite such NovaRay Note Holder’s
name on Exhibit A; provided, however, that such payments shall not be
considered for purposes of determining whether the minimum purchase price obligation has been
satisfied.




ARTICLE II




Representations and Warranties




     Section 2.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser, as of the date hereof (except as set forth in the
schedule of exceptions delivered by the Company to a Purchaser at a Closing in which such Purchaser
participates (the “Schedule of Exceptions”) with each numbered Schedule corresponding to
the section number herein), as follows:



          (a) Organization, Good Standing and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power to own, lease and operate its properties and assets and to conduct
its business as it is now being conducted. Except as set forth on Schedule 2.1(a), the
Company and each of its subsidiaries is duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified could not reasonably be expected to have a
Material Adverse Effect (as defined in Section 2.1(c) hereof).




          (b) Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Registration Rights Agreement in the form
attached hereto as Exhibit D (the “Registration Rights Agreement”), the Lock-Up
Agreements (as defined in Section 3.19 hereof) in the forms attached hereto as Exhibit
E-1 and Exhibit E-2 respectively, the Irrevocable Transfer Agent Instructions (as
defined in Section 3.12), the Certificate of Designation, and the Warrants (collectively,
the “Transaction Documents”) and to issue and sell the Shares and the Warrants in
accordance with the terms hereof. The execution, delivery and performance of the Transaction
Documents by the Company, and the consummation by it of the transactions contemplated hereby and
thereby,



4









 






have been duly and validly authorized by all necessary corporate action, and no further
consent or authorization of the Company or its Board of Directors or stockholders is required.
This Agreement has been duly executed and delivered by the Company. The other Transaction
Documents will have been duly executed and delivered by the Company at the Closing. Each of the
Transaction Documents constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other equitable principles of
general application.




          (c) Capitalization. The authorized capital stock of the Company and the shares
thereof issued and outstanding immediately following the closing of the Merger, are set forth on
Schedule 2.1(c) hereto. All of the outstanding shares of the Common Stock immediately
following the closing of the Merger have been duly and validly authorized. Except as set forth on
Schedule 2.1(c) hereto, no shares of Common Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to,
call relating to, or securities or rights convertible into, any shares of capital stock of the
Company. Except as set forth on Schedule 2.1(c) hereto, there are no contracts,
commitments, understandings, or arrangements by which the Company is or may become bound to issue
additional shares of the capital stock of the Company or options, securities or rights convertible
into shares of capital stock of the Company. Except as set forth on Schedule 2.1(c)
hereto, the Company is not a party to any agreement granting registration or anti-dilution rights
to any person with respect to any of its equity or debt securities. The Company is not a party to,
and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the
capital stock of the Company. The offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Closing complied with all
applicable Federal and state securities laws, and no stockholder has a right of rescission or claim
for damages with respect thereto which would have a Material Adverse Effect (as defined below).
The Company has furnished or made available to the Purchasers true and correct copies of the
Company’s Certificate of Incorporation as in effect on the date hereof (the “Certificate”),
and the Company’s Bylaws as in effect on the date hereof (the “Bylaws”). For the purposes
of this Agreement, “Material Adverse Effect” means any material adverse effect on the
business, operations, properties, prospects or financial condition of the Company and its
subsidiaries, taken as a whole, and/or any condition, circumstance, or situation that would
prohibit or otherwise impair the ability of the Company to perform any of its obligations under
this Agreement in any material respect; provided, however, that any adverse effect
that that is caused primarily by conditions generally affecting the U.S. economy shall be deemed
not to be a Material Adverse Effect.




          (d) Issuance of Shares. The Preferred Shares and the Warrants to be issued at the
Closing have been duly authorized by all necessary corporate action and the Preferred Shares, when
paid for and issued in accordance with the terms hereof, shall be validly issued and outstanding,
fully paid and nonassessable and entitled to the rights and preferences set forth in the
Certificate of Designation. When the Conversion Shares and the Warrant Shares are paid for and
issued in accordance with the terms of the Certificate of Designation and the Warrants,
respectively, such shares will be duly authorized by all necessary corporate action and validly



5









 






issued and outstanding, fully paid and nonassessable, and the holders shall be entitled to all
rights accorded to a holder of Common Stock and/or Preferred Stock (as the case may be).




          (e) No Conflicts. Except as set forth on Schedule 2.1(e) hereto, the
execution, delivery and performance of the Transaction Documents by the Company, the performance by
the Company of its obligations thereunder and the consummation by the Company of the transactions
contemplated herein and therein do not and will not (i) violate any provision of the Company’s
Certificate or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to which the Company is a
party or by which it or its properties or assets are bound, (iii) create or impose a lien,
mortgage, security interest, charge or encumbrance of any nature on any property of the Company
under any agreement or any commitment to which the Company is a party or by which the Company is
bound or by which any of its respective properties or assets are bound, or (iv) result in a
violation of any federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including Federal and state securities laws and regulations) applicable to the Company or
any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries
are bound or affected, except, in all cases other than violations pursuant to clauses (i) and (iv)
above, for such conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its subsidiaries is not being conducted in violation of any laws,
ordinances or regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse Effect. The Company is
not required under Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations under the Transaction
Documents, or issue and sell the Preferred Shares, the Warrants, the Conversion Shares and the
Warrant Shares in accordance with the terms hereof or thereof (other than (x) any consent,
authorization or order that has been obtained as of the date hereof, (y) any filing or registration
that has been made as of the date hereof or (z) any filings which may be required to be made by the
Company with the Commission or state securities administrators subsequent to the Closing, any
registration statement which may be filed pursuant hereto, and the Certificate of Designation);
provided that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and agreements of the
Purchasers herein.




          (f) Commission Documents, Financial Statements. Except as indicated on Schedule
2.1(f), the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it since the closing of the Merger with the Commission pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of
the foregoing including filings incorporated by reference therein being referred to herein as the
“Commission Documents”). The Company has delivered or made available to each of the
Purchasers (through the EDGAR system or otherwise) true and complete copies of the Commission
Documents. The Company has not provided to the Purchasers any material non-public information or
other information which, according to applicable law, rule or regulation,



6









 






was required to have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this Agreement and the
Merger Agreement. At the times of their respective filings, the Company has complied in all
material respects with the requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and, as of their respective dates, none of the Commission Documents
contained any untrue statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial statements of the Company
included in the Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements have been
prepared in accordance with United States generally accepted accounting principles (“GAAP”)
applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes), and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).




          (g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and showing the percentage
of each person’s ownership. For the purposes of this Agreement, “subsidiary” shall mean
any corporation or other entity of which at least a majority of the securities or other ownership
interest having ordinary voting power (absolutely or contingently) for the election of directors or
other persons performing similar functions are at the time owned directly or indirectly by the
Company and/or any of its other subsidiaries. All of the outstanding shares of capital stock of
each subsidiary have been duly authorized and validly issued, and are fully paid and nonassessable.
There are no outstanding preemptive, conversion or other rights, options, warrants or agreements
granted or issued by or binding upon any subsidiary for the purchase or acquisition of any shares
of capital stock of any subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither the Company nor
any subsidiary is subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of the capital stock of any subsidiary or any convertible securities,
rights, warrants or options of the type described in the preceding sentence. Neither the Company
nor any subsidiary is party to, nor has any knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of any subsidiary.




          (h) No Material Adverse Change. Since the closing of the Merger, the Company has not
experienced or suffered any Material Adverse Effect, and since September 30, 2007, the Company’s
subsidiaries have not experienced or suffered any Material Adverse Effect.




          (i) No Undisclosed Liabilities. Except as set forth on Schedule 2.1(i),
neither the Company nor any of its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or
otherwise) other than: (i) those reflected in the financial statements of the Company or any
financial statements of any subsidiary of the Company filed with the Commission in connection with
the



7









 






Merger (the “NovaRay Financial Statements”); or (ii) those incurred in the ordinary
course of the Company’s or its subsidiaries respective businesses since September 30, 2007, and
which, individually or in the aggregate, do not or would not have a Material Adverse Effect on the
Company or its subsidiaries.




          (j) No Undisclosed Events or Circumstances. Since the closing of the Merger, no event
or circumstance has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed, other than with respect to the transactions
contemplated by this Agreement and the Merger Agreement.




          (k) Indebtedness. Schedule 2.1(k) hereto sets forth as of a recent date all
outstanding secured and unsecured Indebtedness of the Company or any subsidiary, or for which the
Company or any subsidiary has commitments, in each case that have not previously been set forth in
the Commission Documents or the NovaRay Financial Statements. For the purposes of this Agreement,
“Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed in excess
of $100,000 (other than trade accounts payable incurred in the ordinary course of business), (b)
all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others,
whether or not the same are or should be reflected in the Company’s balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present value of any lease
payments in excess of $25,000 due under leases required to be capitalized in accordance with GAAP.
Except as set forth on Schedule 2.1(k), neither the Company nor any subsidiary is in
default with respect to any Indebtedness.




          (l) Title to Assets. Except as set forth on Schedule 2.1(l), each of the
Company and the subsidiaries has good and marketable title to all of its real and personal
property, free and clear of any mortgages, pledges, charges, liens, security interests or other
encumbrances, or such that, individually or in the aggregate, do not cause a Material Adverse
Effect. Except as set forth on Schedule 2.1(l), all leases of the Company and each of its
subsidiaries are valid and subsisting and in full force and effect.




          (m) Actions Pending. There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or any other proceeding pending or, to the knowledge of the
Company, threatened against the Company or any subsidiary which questions the validity of this
Agreement or any of the other Transaction Documents or the transactions contemplated hereby or
thereby or any action taken or to be taken pursuant hereto or thereto. There is no action, suit,
claim, investigation, arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened, against or involving the Company, any
subsidiary or any of their respective properties or assets. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or governmental or regulatory
body against the Company or any subsidiary or any officers or directors of the Company or
subsidiary in their capacities as such.




8









 








          (n) Compliance with Law. The business of the Company’s subsidiaries, and, since the
consummation of the Merger, the business of the Company, has been and is presently being conducted
in accordance with all applicable federal, state and local governmental laws, rules, regulations
and ordinances, except for such noncompliance that, individually or in the aggregate, would not
cause a Material Adverse Effect. The Company and each of its subsidiaries have all franchises,
permits, licenses, consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.




          (o) Taxes. The Company and each of the subsidiaries has accurately prepared and filed
all federal, state and other tax returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all additional assessments, and
adequate provisions have been and are reflected in the financial statements of the Company and the
subsidiaries for all current taxes and other charges to which the Company or any subsidiary is
subject and which are not currently due and payable. None of the federal income tax returns of the
Company or any subsidiary have been audited by the Internal Revenue Service. The Company has no
knowledge of any additional assessments, adjustments or contingent tax liability (whether federal
or state) of any nature whatsoever, whether pending or threatened against the Company or any
subsidiary for any period, nor of any basis for any such assessment, adjustment or contingency.




          (p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, no brokers,
finders or financial advisory fees or commissions will be payable by the Company or any subsidiary
or any Purchaser with respect to the transactions contemplated by this Agreement.




          (q) Disclosure. Neither this Agreement or the Schedule of Exceptions hereto nor any
other documents, certificates or instruments required to be delivered to the Purchasers by or on
behalf of the Company or any subsidiary by this Agreement or the other Transaction Documents
contain any untrue statement of a material fact or omit to state a material fact necessary in order
to make the statements made herein or therein, in the light of the circumstances under which they
were made herein or therein, not misleading.




          (r) Environmental Compliance. The Company and each of its subsidiaries have obtained
all material approvals, authorization, certificates, consents, licenses, orders and permits or
other similar authorizations of all governmental authorities, or from any other person, that are
required under any Environmental Laws. Schedule 2.1(r) describes all material permits,
licenses and other authorizations issued under any Environmental Laws to the Company or its
subsidiaries. “Environmental Laws” shall mean all applicable laws relating to the
protection of the environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature,
into the air, surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, material or wastes, whether
solid, liquid or gaseous



9









 






in nature. The Company has all necessary governmental approvals required under all
Environmental Laws and used in its business or in the business of any of its subsidiaries. The
Company and each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables required or imposed
under all Environmental Laws. Except for such instances as would not individually or in the
aggregate have a Material Adverse Effect, the Company is not aware of any past or present events,
conditions, circumstances, incidents, actions or omissions relating to the Company or its
subsidiaries that violate or may violate any Environmental Law after the Initial Closing Date.




          (s) Books and Records. The books and records of the Company and its subsidiaries
accurately reflect in all material respects the information relating to the business of the Company
and the subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the Company or any
subsidiary.



          (t) Material Agreements. Except as set forth on Schedule 2.1(t), neither the
Company nor any subsidiary is a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the
Commission as an exhibit to a registration statement on Form SB-2 (collectively, “Material
Agreements”) if the Company or any subsidiary were registering securities under the Securities
Act. Except as set forth on Schedule 2.1(t), the Company and each of its subsidiaries has
in all material respects performed all the obligations required to be performed by them to date
under the foregoing agreements, have received no notice of default and are not in default under any
Material Agreement now in effect, the result of which could cause a Material Adverse Effect.
Except as set forth on Schedule 2.1(t), no written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement of the Company or of any subsidiary limits the payment
of dividends on the Company’s Preferred Shares, other preferred stock, if any, or its Common Stock.



          (u) Intellectual Property. The Company and its subsidiaries own, or have rights to
use, all inventions, know-how, patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other similar rights that are
necessary for the conduct of their respective businesses now operated by them which the failure to
so have would have or reasonably be expected to result in a Material Adverse Effect (collectively,
the “Intellectual Property Rights”). Schedule 2.1(u) sets forth a complete and
accurate list of the Company’s material Intellectual Property Rights. Neither the Company’s nor
any subsidiary’s Intellectual Property Rights have expired or terminated, or are expected to expire
or terminate, within three years from the date of this Agreement. Neither the Company nor any
subsidiary has received written notice that the Intellectual Property Rights used by the Company or
any Subsidiary violates or infringes upon the rights of any person. To the knowledge of the
Company, the Company and its subsidiaries’ Intellectual Property Rights do not infringe any patent,
copyright, trademark, trade name or other proprietary rights of any third party, and there is no
claim, action or proceeding being made or brought against, or to the Company’s knowledge, being
threatened against, the Company or any subsidiary regarding any of the Intellectual Property Rights
used by the Company or any subsidiary. The Company does not have any knowledge of an infringement
by another person of any of its Intellectual Property Rights by third parties and has no reason to
believe that any of its Intellectual Property Rights is



10









 




unenforceable. The Company has taken commercially reasonable security measures to protect the
secrecy and confidentiality of its Intellectual Property Rights.




          (v) Transactions with Affiliates. Except as set forth on Schedule 2.1(v),
there are no loans, leases, agreements, contracts, royalty agreements, management contracts or
arrangements or other continuing transactions between (a) the Company or any subsidiary on the one
hand, and (b) on the other hand, any officer, employee, consultant or director of the Company, or
any of its subsidiaries, or any person owning any capital stock of the Company or any subsidiary or
any member of the immediate family of such officer, employee, consultant, director or stockholder
or any corporation or other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee, consultant, director or
stockholder.




          (w) Securities Act of 1933. Based in material part upon the representations herein of
the Purchasers, the Company has complied and will comply with all applicable federal and state
securities laws in connection with the offer, issuance and sale of the Preferred Shares and the
Warrants hereunder. Neither the Company nor anyone acting on its behalf, directly or indirectly,
has or will sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or similar
securities to, or solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person, or has taken or will take any
action, so as to bring the issuance and sale of any of the Shares and the Warrants under the
registration provisions of the Securities Act and applicable state securities laws, and neither the
Company nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of Regulation D under the
Securities Act) in connection with the offer or sale of any of the Preferred Shares and the
Warrants.




          (x) Governmental Approvals. Except for the filing of any notice prior or subsequent
to the Closing Date that may be required under applicable state and/or federal securities laws
(which if required, shall be filed on a timely basis), including the filing of a Form D and a
registration statement or statements pursuant to the Registration Rights Agreement, and the filing
of the Certificate of Designation with the Secretary of State for the State of Delaware, no
authorization, consent, approval, license, exemption of, filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign,
is or will be necessary for, or in connection with, the execution or delivery of the Preferred
Shares and the Warrants, or for the performance by the Company of its obligations under the
Transaction Documents.




          (y) Employees. Neither the Company nor any subsidiary has any collective bargaining
arrangements or agreements covering any of its employees. Except as set forth on Schedule
2.1(y), neither the Company nor any subsidiary is a party to any employment contract, agreement
regarding proprietary information, non-competition agreement, non-solicitation agreement, or
confidentiality agreement relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. No officer, consultant or key employee of
the Company or any subsidiary whose termination, either individually or in the aggregate, could
have a Material Adverse Effect, has terminated or, to the



11









 






knowledge of the Company, has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.




          (z) Foreign Corrupt Practices. Neither the Company nor any of its Subsidiaries nor,
to the knowledge of the Company, any director, officer, agent, or employee acting on behalf of the
Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the
Company (a) used any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payment
to any foreign or domestic government official or employee from corporate funds; (c) violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(d) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to any foreign or domestic government official or employee.




          (aa) Absence of Certain Developments. Except as set forth on Schedule
2.1(aa), since the consummation of the Merger the Company, and since September 30, 2007 the
Company’s subsidiaries, have not:




               (i) issued any stock, bonds or other corporate securities or any rights, options or warrants
with respect thereto;



               (ii) borrowed any amount or incurred or become subject to any liabilities (absolute or
contingent) except: (i) liabilities already disclosed in the financial statements of the Company or
the NovaRay Financial Statements; and (ii) liabilities incurred in the ordinary course of business;



               (iii) discharged or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than liabilities paid in the ordinary course of business;



               (iv) declared or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or entered into any agreements so to purchase
or redeem, any shares of its capital stock;



               (v) sold, assigned or transferred any other tangible assets, or canceled any debts or claims,
except in the ordinary course of business;



               (vi) sold, assigned or transferred any of the Company’s or any subsidiary’s Intellectual
Property Rights, or disclosed any of the Company’s or any subsidiary’s proprietary confidential
information to any person except to customers or consultants of the Company or any subsidiary in
the ordinary course of business or to the Purchasers or their representatives;



               (vii) suffered any substantial losses or waived any rights of material value, whether or not
in the ordinary course of business;



               (viii) made any changes in employee compensation except in the ordinary course of business and
consistent with past practices;



12









 





               (ix) made capital expenditures or commitments therefor that aggregate in excess of $100,000;



               (x) made charitable contributions or pledges in excess of $25,000;



               (xi) suffered any material damage, destruction or casualty loss, whether or not covered by
insurance;



               (xii) experienced any material problems with labor or management in connection with the terms
and conditions of their employment;



               (xiii) entered into an agreement, written or otherwise, to take any of the foregoing actions.



          (bb) Public Utility Holding Company Act and Investment Company Act Status. The
Company is not a “holding company” or a “public utility company” as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended. The Company is not, and as a result of and
immediately upon the Closing will not be, an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940, as amended.




          (cc) ERISA. Neither the Company nor its subsidiaries, through any trade or business,
whether or not incorporated, which, together with the Company or any subsidiary, is under common
control, as described in Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended
(the “Code”), has established or maintained, or made any contributions to an “employee
pension benefit plan” (as defined in Section 3 of Employee Retirement Income Security Act of 1974,
as amended (“ERISA”).




          (dd) Dilutive Effect. The Company understands and acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance with this Agreement
and the Certificate of Designation and its obligations to issue the Warrant Shares upon the
exercise of the Warrants in accordance with this Agreement and the Warrants, is, in each case,
absolute and unconditional regardless of the dilutive effect that such issuance may have on the
ownership interest of other stockholders of the Company.




          (ee) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that would cause the
offering of the Preferred Shares and Warrants pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the Securities Act which would prevent the Company
from selling the Shares pursuant to Rule 506 under the Securities Act, nor will the Company or any
of its affiliates or subsidiaries take any action or steps that would cause the offering of the
Shares to be so integrated with other offerings. The Company does not have any registration
statement pending before the Commission or currently under the Commission’s review.




          (ff) Sarbanes-Oxley Act. Since the consummation of the Merger, the Company is in
compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the




13









 







“Sarbanes-Oxley Act”), and the rules and regulations promulgated thereunder, that are
effective, and intends to comply with other applicable provisions of the Sarbanes-Oxley Act, and
the rules and regulations promulgated thereunder, upon the effectiveness of such provisions.




          (gg) Independent Nature of Purchasers. The Company acknowledges that the obligations
of each Purchaser under the Transaction Documents are several and not joint with the obligations of
any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under the Transaction Documents. The Company acknowledges that
the decision of each Purchaser to purchase securities pursuant to this Agreement has been made by
such Purchaser independently of any other purchase and independently of any information, materials,
statements or opinions as to the business, affairs, operations, assets, properties, liabilities,
results of operations, condition (financial or otherwise) or prospects of the Company or of its
subsidiaries which may have made or given by any other Purchaser or by any agent or employee of any
other Purchaser. The Company acknowledges that nothing contained herein, or in any Transaction
Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the Transaction Documents.
The Company acknowledges that each Purchaser shall be entitled to independently protect and enforce
its rights, including without limitation, the rights arising out of this Agreement or out of the
other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose. The Company acknowledges that for reasons
of administrative convenience only, the Transaction Documents have been prepared by counsel for the
Lead Investor and such counsel does not represent all of the Purchasers but only the Lead Investor
and the other Purchasers have had the opportunity to retain their own individual counsel with
respect to the transactions contemplated hereby.




          (hh) Insurance. The insurance policies owned and maintained by the Company that are
material to the Company are in full force and effect, all premiums due and payable thereon have
been paid (other than retroactive or retrospective premium adjustments that the Company is not
currently required, but may in the future be required, to pay with respect to any period ending
prior to the date of this Agreement), and the Company has received no notice of cancellation or
termination with respect to any such policy that has not been replaced on substantially similar
terms prior to the date of such cancellation.




          (ii) Transfer Agent. The name, address, telephone number, fax number, contact person
and email of the Company’s current transfer agent is set forth on Schedule 2.1(ii) hereto.




     Section 2.2 Representations, Warranties and Covenants of the Purchasers. Each
Purchaser hereby makes the following representations, warranties and covenants to the Company with
respect solely to itself and not with respect to any other Purchaser:




          
(a) Organization and Standing of the Purchasers. If the Purchaser is an entity, such
Purchaser is a corporation, partnership or limited liability company duly incorporated or



14









 




organized, validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization.




          (b) Authorization and Power. Each Purchaser has the requisite power and authority to
enter into and perform this Agreement and to purchase the Preferred Shares and Warrants being sold
to it hereunder. The execution, delivery and performance of this Agreement and the Registration
Rights Agreement by such Purchaser and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate or partnership action, and
no further consent or authorization of such Purchaser or its Board of Directors, stockholders,
members, managers or partners, as the case may be, is required. Each of this Agreement and the
Registration Rights Agreement has been duly authorized, executed and delivered by such Purchaser
and constitutes, or shall constitute when executed and delivered, a valid and binding obligation of
such Purchaser enforceable against such Purchaser in accordance with the terms thereof.




          (c) No Conflicts. The execution, delivery and performance of this Agreement and the
Registration Rights Agreement by each Purchaser and the consummation by such Purchaser of the
transactions contemplated hereby and thereby or relating hereto do not and will not (i) result in a
violation of such Purchaser’s charter documents or bylaws or other organizational documents or (ii)
conflict with, or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination, amendment, acceleration
or cancellation of any agreement, indenture or instrument or obligation to which such Purchaser is
a party or by which its properties or assets are bound, or result in a violation of any law, rule,
or regulation, or any order, judgment or decree of any court or governmental agency applicable to
such Purchaser or its properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such Purchaser’s ability to
perform its obligations hereunder). Such Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations under this Agreement
or the Registration Rights Agreement or to purchase the Preferred Shares or acquire the Warrants in
accordance with the terms hereof, provided that for purposes of the representation made in
this sentence, such Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.




          (d) Acquisition for Investment. Each Purchaser is acquiring the Preferred Shares and
the Warrants in the ordinary course of its business and solely for its own account for the purpose
of investment and not as a nominee or with a view to or for sale in connection with distribution.
Each Purchaser does not have a present intention to sell the Preferred Shares or the Warrants in a
manner that would violate the registration requirements of Federal and state securities laws, nor a
present arrangement (whether or not legally binding) or intention to effect any distribution of the
Preferred Shares or the Warrants to or through any person or entity; provided,
however, that by making the representations herein and subject to Section 2.2(h)
below, such Purchaser does not agree to hold the Shares or the Warrants for any minimum or other
specific term and reserves the right to dispose of the Shares or the Warrants at any time in
accordance with Federal and state securities laws applicable to such disposition. Each Purchaser
will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Preferred Shares
or



15









 






Warrants, nor will such Purchaser engage in any short sale that results in a disposition of
any of the Preferred Shares or Warrants by such Purchaser, except in compliance with any applicable
state and Federal securities laws. Each Purchaser acknowledges that it is able to bear the
financial risks associated with an investment in the Preferred Shares and the Warrants and that it
has been given full access to such records of the Company and the subsidiaries and to the officers
of the Company and the subsidiaries and has carefully reviewed and considered all such information
as it has deemed necessary or appropriate to conduct such Purchaser’s due diligence investigation
and has sufficient knowledge and experience in investing in companies similar to the Company in
terms of the Company’s stage of development so as to be able to evaluate the risks and merits of
its investment in the Company.




          (e) Status of Purchasers. Each Purchaser is an “accredited investor” as defined in
Regulation D promulgated under the Securities Act. Such Purchaser is not required to be registered
as a broker-dealer under Section 15 of the Exchange Act and such Purchaser is not a broker-dealer.




          (f) Opportunities for Additional Information. Subject to Section 7.3 hereof,
each Purchaser acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive officers of the Company
concerning the financial and other affairs of the Company, and to the extent deemed necessary in
light of such Purchaser’s personal knowledge of the Company’s affairs, such Purchaser has asked
such questions and received answers to the full satisfaction of such Purchaser, and such Purchaser
desires to invest in the Company.




          (g) No General Solicitation. Each Purchaser acknowledges that the Preferred Shares
and the Warrants were not offered to such Purchaser by means of any form of general or public
solicitation or general advertising, or publicly disseminated advertisements or sales literature,
including (i) any advertisement, article, notice or other communication published in any newspaper,
magazine, or similar media, or broadcast over television or radio, or (ii) any seminar or meeting
to which such Purchaser was invited by any of the foregoing means of communications.




          (h) Rule 144. Such Purchaser understands that the Shares must be held indefinitely
unless such Shares are registered under the Securities Act or an exemption from registration is
available. Such Purchaser acknowledges that such Purchaser is familiar with Rule 144 of the rules
and regulations of the Commission, as amended, promulgated pursuant to the Securities Act
(“Rule 144”), and that such person has been advised that Rule 144 permits resales only
under certain circumstances. Such Purchaser understands that to the extent that Rule 144 is not
available, such Purchaser will be unable to sell any Shares without either registration under the
Securities Act or the existence of another exemption from such registration requirement.




          (i) General. Such Purchaser understands that the Shares are being offered and sold in
reliance on a transactional exemption from the registration requirement of Federal and state
securities laws and the Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in
order to determine the applicability of such exemptions and the suitability of such Purchaser to
acquire the Shares.




16









 








          (j) Independent Investment. Except as may be disclosed in any filings with the
Commission by the Purchasers under Section 13 and/or Section 16 of the Exchange Act, no Purchaser
has agreed to act with any other Purchaser for the purpose of acquiring, holding, voting or
disposing of the Shares purchased hereunder for purposes of Section 13(d) under the Exchange Act,
and each Purchaser is acting independently with respect to its investment in the Shares. Each
Purchaser understands that nothing in the Agreement or any other materials presented to such
Purchaser in connection with the purchase and sale of the Preferred Shares and Warrants constitutes
legal, tax or investment advice. Each Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its
purchase of the Preferred Shares and Warrants.




          (k) Risk of Loss; No Public Market. Each Purchaser understands that its investment in
the Preferred Shares and Warrants involves a significant degree of risk, including a risk of total
loss of such Purchaser’s investment. Each Purchaser understands that there currently is no public
market for the securities of the Company; that the purchase price for the Shares was established by
negotiations between NovaRay and the Lead Investor; and that no representation is being made as to
the future value of any of the Company’s securities.




ARTICLE III




Covenants




     The Company covenants with each of the Purchasers as follows, which covenants are for the
benefit of the Purchasers and their permitted assignees hereunder.



     Section 3.1 Securities Compliance. The Company shall notify the Commission in
accordance with its rules and regulations of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the Preferred Shares, Warrants,
Conversion Shares and Warrant Shares as required under Regulation D and applicable “blue sky” laws,
and shall take all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares to the Purchasers or subsequent holders.



     Section 3.2 Registration and Listing. The Company shall (a) either (i) cause its
Common Stock to continue to be registered under Section 12(b) or 12(g) of the Exchange Act, or (ii)
continue to voluntarily file all reports required to be filed as if the Company were so registered,
and in any event shall comply in all respects with its reporting and filing obligations under the
Exchange Act, (b) comply with all requirements related to any registration statement filed pursuant
to this Agreement, and (c) not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the Exchange Act or
Securities Act, except as permitted herein. The Company will take all action necessary to begin
the listing or trading of its Common Stock on the OTC Bulletin Board or other similar exchange or
market no later than forty-five (45) days from the Effectiveness Date (as defined in the
Registration Rights Agreement). Subject to the terms of the Transaction Documents, the Company
further covenants that it will take such further action as the Purchasers



17









 




may reasonably request, all to the extent required from time to time, to enable the Purchasers
to sell the Shares without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144. Upon the request of the Purchasers, the Company shall deliver to
the Purchasers a written certification of a duly authorized officer as to whether it has complied
with such requirements.




     Section 3.3 Inspection Rights. The Company shall permit, during normal business hours
and upon reasonable request and reasonable notice, each Purchaser or any employees, agents or
representatives thereof, so long as such Purchaser shall be obligated hereunder to purchase the
Preferred Shares or shall beneficially own any Preferred Shares, or shall own Conversion Shares
which, in the aggregate, represent more than 2% of the total combined voting power of all voting
securities then outstanding, for purposes reasonably related to such Purchaser’s interests as a
stockholder, to examine and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect the properties, assets, operations and business of the Company
and any subsidiary, and to discuss the affairs, finances and accounts of the Company and any
subsidiary with any of its officers, consultants, directors, and key employees. As a condition to
such inspection, Purchasers shall keep such information confidential; provided that such
information may be disclosed (i) to the extent required by applicable law, regulation or legal
process, subpoena, civil investigative demand or other similar process, (ii) to the extent
reasonably necessary in connection with the enforcement of rights under this Agreement, (iii) to
any governmental, judicial or regulatory authority requiring or requesting such information, and
(iv) to its directors, officers, employees, accountants, and legal counsel who need to know such
information.



     Section 3.4 Compliance with Laws. The Company shall comply, and cause each subsidiary
to comply, with all applicable laws, rules, regulations and orders, noncompliance with which could
have a Material Adverse Effect.



     Section 3.5 Keeping of Records and Books of Account. The Company shall keep and cause
each subsidiary to keep adequate records and books of account, in which complete entries will be
made in accordance with GAAP consistently applied, reflecting all financial transactions of the
Company and its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in
connection with its business shall be made.



     Section 3.6 Reporting Requirements. If the Commission ceases making periodic reports
filed under the Exchange Act available via the Internet, then at a Purchaser’s request the Company
shall furnish the following to such Purchaser so long as such Purchaser shall be obligated
hereunder to purchase the Preferred Shares or shall beneficially own any Shares:



          (a) Quarterly Reports filed with the Commission on Form 10-QSB as soon as practical after the
document is filed with the Commission, and in any event within five (5) days after the document is
filed with the Commission;




          (b) Annual Reports filed with the Commission on Form 10-KSB as soon as practical after the
document is filed with the Commission, and in any event within five (5) days after the document is
filed with the Commission; and




18









 








          (c) Copies of all notices and information, including without limitation notices and proxy
statements in connection with any meetings, that are provided to holders of shares of Common Stock,
contemporaneously with the delivery of such notices or information to such holders of Common Stock.




     Section 3.7 Amendments. The Company shall not amend or waive any provision of the
Certificate or Bylaws of the Company in any way that would adversely affect the liquidation
preferences, dividends rights, conversion rights, voting rights or redemption rights of the
Preferred Shares; provided, however, that any creation and issuance of another
series of Junior Stock (as defined in the Certificate of Designation) shall not be deemed to
materially and adversely affect such rights, preferences or privileges.



     Section 3.8 Other Agreements. The Company shall not enter into any agreement in which
the terms of such agreement would restrict or impair the right or ability of the Company or any
subsidiary to perform under any Transaction Document.



     Section 3.9 Distributions. So long as any Preferred Shares or Underlying Preferred
Shares remain outstanding, the Company agrees that it shall not (i) declare or pay any dividends or
make any distributions to any holder(s) of Common Stock or (ii) purchase or otherwise acquire for
value, directly or indirectly, any Common Stock or other equity security of the Company except for
(y) repurchases of shares of Common Stock issued to or held by employees, officers, directors, or
consultants of the Company or its subsidiaries upon termination of their employment or services
pursuant to agreements providing for the right of said repurchase, and (z) repurchases of shares of
Common Stock issued to or held by employees, officers, directors, or consultants of the Company or
its subsidiaries pursuant to rights of first refusal contained in agreements providing for such
rights.



     Section 3.10 Use of Proceeds. The net proceeds from the sale of the Shares hereunder
shall be used by the Company for working capital and general corporate purposes and not to redeem
any Common Stock or securities convertible, exercisable or exchangeable into Common Stock or to
settle any outstanding litigation.



     Section 3.11 Reservation of Shares. So long as any of the Preferred Shares or
Warrants remain outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than one hundred ten percent (110%)
of the aggregate number of shares of Common Stock needed to provide for the issuance of the
Conversion Shares and the Warrant Shares.



     Section 3.12 Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Purchaser or its respective nominee(s), for the Conversion Shares
and the Warrant Shares in such amounts as specified from time to time by each Purchaser to the
Company upon conversion of the Preferred Shares (or Underlying Preferred Shares) or exercise of the
Warrants in the form of Exhibit F attached hereto (the “Irrevocable Transfer Agent
Instructions”). Prior to registration of the Conversion Shares and the Warrant Shares under
the Securities Act, all such certificates shall bear the restrictive legend specified in
Section 5.1 of this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer



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Agent Instructions referred to in this Section 3.12 will be given by the Company to
its transfer agent and that the Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the Registration Rights
Agreement. If a Purchaser provides the Company with an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that a public sale, assignment or transfer of the Shares
may be made without registration under the Securities Act or the Purchaser provides the Company
with reasonable assurances that such Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in
such name and in such denominations as specified by such Purchaser and without any restrictive
legend. The Company acknowledges that a breach by it of its obligations under this Section
3.12 will cause irreparable harm to the Purchasers by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for
a breach of its obligations under this Section 3.12 will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this Section
3.12, that the Purchasers shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other security being
required.




     Section 3.13 Disposition of Assets. So long as any Preferred Shares and/or Underlying
Preferred Shares remain outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including, without limitation, its
software and intellectual property, to any person except for licenses or sales to customers in the
ordinary course of business or with the prior written consent of the holders of a majority of the
Preferred Shares and Underlying Preferred Shares then outstanding.



     Section 3.14 Reporting Status. So long as a Purchaser beneficially owns any of the
Shares, the Company shall timely file all reports required to be filed with the Commission pursuant
to the Exchange Act, and the Company shall not cease filing reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such termination.



     Section 3.15 Disclosure of Transaction. The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the “Press Release”)
as soon as practicable after the Initial Closing but in no event later than 9:00 A.M. Eastern Time
on the first Trading Day following the Initial Closing. The Company shall also file with the
Commission a Current Report on Form 8-K (the “Form 8-K”) describing the material terms of
the transactions contemplated hereby (and attaching as exhibits thereto this Agreement, the
Registration Rights Agreement, the Certificate of Designation, the Lock-Up Agreements, the form of
each series of Warrant and the Press Release) as soon as practicable following the Closing Date but
in no event more than four (4) Trading Days following the Closing Date, which Press Release and
Form 8-K shall be subject to prior review and comment by counsel for the Purchasers. “Trading
Day” means any day during which the OTC Bulletin Board (or other quotation venue or principal
exchange on which the Common Stock is traded) shall be open for trading.



20









 





     Section 3.16 Disclosure of Material Information. The Company covenants and agrees
that neither it nor any other person acting on its behalf has provided or will provide any
Purchaser or its agents or counsel with any information that the Company believes constitutes
material non-public information (other than with respect to the transactions contemplated by this
Agreement), unless prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting transactions in securities
of the Company.



     Section 3.17 Pledge of Securities. The Company acknowledges and agrees that the
Shares may be pledged by a Purchaser in connection with a bona fide margin agreement or other loan
or financing arrangement that is secured by the Common Stock. The pledge of Common Stock shall not
be deemed to be a transfer, sale or assignment of the Common Stock hereunder, and no Purchaser
effecting a pledge of Common Stock shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction
Document; provided that a Purchaser and its pledgee shall be required to comply with the provisions
of Article V hereof in order to effect a sale, transfer or assignment of Common Stock to
such pledgee. At the Purchasers’ expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Common Stock may reasonably request in connection with a pledge
of the Common Stock to such pledgee by a Purchaser.



     Section 3.18 Form SB-2 Eligibility. The Company currently meets the “registrant
eligibility” and transaction requirements set forth in the general instructions to Form SB-2
applicable to “resale” registrations on Form SB-2.



     Section 3.19 Lock-Up Agreement. The parties listed on Schedule 3.19 attached
hereto shall be subject to the terms and provisions of a lock-up agreement in substantially the
form as Exhibit E-1 (the “Stockholder Lock-Up Agreement”) or Exhibit E-2
(the “AIG Lock-Up Agreement,” and together with the Stockholder Lock-Up Agreement,
collectively, the “Lock-Up Agreements”) hereto as indicated on such Schedule, which shall
provide the manner in which such persons will sell, transfer or dispose of their shares of Common
Stock.



     Section 3.20 DTC. Not later than the effective date of the Registration Statement (as
defined in the Registration Rights Agreement), the Company shall cause its Common Stock to be
eligible for transfer with its transfer agent pursuant to the Depository Trust Company Fast
Automated Securities Transfer Program.



     Section 3.21 Sarbanes-Oxley Act. The Company shall use its best efforts to be in
compliance with the applicable provisions of the Sarbanes-Oxley Act.



     Section 3.22 No Commissions in connection with Conversion of Preferred Shares. In
connection with the conversion of the Preferred Shares or Underlying Preferred Shares into
Conversion Shares, neither the Company nor any person acting on its behalf will take any action
that would result in the Conversion Shares being exchanged by the Company other than with the then
existing holders of the Preferred Shares or Underlying Preferred Shares exclusively where



21









 




no commission or other remuneration is paid or given directly or indirectly for soliciting the
exchange in compliance with Section 3(a)(9) of the Securities Act.




ARTICLE IV




Conditions




     Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the Shares.
The obligation hereunder of the Company to issue and sell the Preferred Shares and the Warrants to
each Purchaser (taken individually) is subject to the satisfaction or waiver, at or before the
Closing, of each of the conditions set forth below. These conditions are for the Company’s sole
benefit and may be waived by the Company at any time in its sole discretion.



          (a) Accuracy of Each Purchaser’s Representations and Warranties. The representations
and warranties of each Purchaser shall be true and correct in all material respects as of the date
when made and as of the Closing Date applicable to such Purchaser as though made at that time,
except for representations and warranties that are expressly made as of a particular date, which
shall be true and correct in all material respects as of such date.




          (b) Performance by the Purchasers. Each Purchaser shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser at or prior to the Closing.




          (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.




          (d) Delivery of Purchase Price. The Purchase Price for the Preferred Shares and
Warrants has been delivered to the Company.




          (e) Delivery of Transaction Documents. The Transaction Documents have been duly
executed and delivered by the Purchasers to the Company.




          (f) Merger. Prior to the Closing, the Company, the Merger Sub and NovaRay shall have
consummated the Merger and the Certificate of Merger shall have been filed with the Secretary of
State of Delaware.




          (g) Cancellation of NovaRay Notes. The NovaRay Note Holders shall have agreed to
cancel their NovaRay Notes in accordance with this Agreement.




     Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase the
Shares. The obligation hereunder of each Purchaser to acquire and pay for the Preferred Shares
and the Warrants is subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below. These conditions are for each Purchaser’s sole benefit and may be
waived by such Purchaser at any time in its sole discretion.




22











 





          (a) Accuracy of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the Registration Rights
Agreement shall be true and correct in all respects as of the date when made and shall be true and
correct in all material respects as of the Closing Date applicable to such Purchaser as though made
at that time (except for representations and warranties that are expressly made as of a particular
date, which shall be true and correct in all material respects as of such date); provided, however,
that to the extent that any representation and warranty of the Company or its subsidiary, Vision
Acquisition Subsidiary, Inc., in Article 3 of the Merger Agreement shall not be true and correct in
any respect, the breach of any corresponding representation and warranty of the Company contained
herein shall not entitle the Lead Investor to terminate or otherwise not fulfill its obligations
hereunder on the basis of this Section 4.2(a).




          (b) Performance by the Company. The Company shall have performed, satisfied and
complied in all respects with all covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Company at or prior to the Closing.




          (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.




          (d) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator
or any governmental authority shall have been commenced, and no investigation by any governmental
authority shall have been threatened, against the Company or any subsidiary, or any of the
officers, directors or affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in connection with such
transactions.




          (e) Certificate of Designation of Rights and Preferences. Prior to the Closing, the
Certificate of Designation in the form of Exhibit B attached hereto shall have been filed
with the Secretary of State of Delaware.




          (f) Opinion of Counsel, Etc. At the Initial Closing, the Lead Investor shall have
received an opinion of counsel to the Company, dated as of the Initial Closing Date, in
substantially the form of Exhibit G hereto, and such other certificates and documents as
the Lead Investor or its counsel shall reasonably require incident to the Closing.




          (g) Registration Rights Agreement. At the Closing, the Company shall have executed
and delivered the Registration Rights Agreement in the form of Exhibit D attached hereto to
each Purchaser.




          (h) Certificates. The Company shall have executed and delivered to the Purchasers the
certificates for the Preferred Shares and the Warrants being acquired by such Purchaser at the
Closing (in each case, in such denominations as such Purchaser shall request).




23









 








          (i) Resolutions. The Board of Directors of the Company shall have adopted resolutions
consistent with Section 2.1(b) hereof in a form reasonably acceptable to such Purchasers
(the “Resolutions”).




          (j) Reservation of Shares. As of the Closing Date, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of issuance, no less than
(i) such number of shares of Underlying Preferred Shares equal to one hundred percent (100%) of the
number of shares of Underlying Preferred Shares as shall from time to time be sufficient to effect
the entire exercise of the Series J Warrant; (ii) such number of shares of Common Stock equal to
one hundred ten percent (110%) of the number of shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all of the Preferred Shares and Underlying Preferred
Shares; and (iii) as of the date hereof, such number of shares of Common Stock equal to one hundred
ten percent (110%) of the number of shares of Common Stock as shall from time to time be sufficient
to effect the exercise of the Series A Warrants and Series J-A Warrants then outstanding.




          (k) Transfer Agent Instructions. As of the Closing Date, the Irrevocable Transfer
Agent Instructions shall have been delivered to and acknowledged in writing by the Company’s
transfer agent.




          (l) Lock-Up Agreement. As of the Closing Date, the parties listed on Schedule
3.19 hereto shall have delivered to the Purchasers either a fully executed Stockholder Lock-Up
Agreement in the form of Exhibit E-1 attached hereto or an AIG Lock-Up Agreement in the
form of Exhibit E-2 attached hereto as indicated on such Schedule.




          (m) Good Standing Certificates. The Company shall have delivered to the Lead Investor
good standing certificates showing it and any subsidiary are validly existing and in good standing
under the laws of the state of their incorporation and as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property owned by such entity makes
such qualification necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not result in a direct and/or indirect Material Adverse Effect




          (n) Secretary’s Certificate. The Company shall have delivered to such Purchaser a
secretary’s certificate, dated as of the Closing Date, as to (i) the Resolutions, (ii) the
Certificate, (iii) the Bylaws, (iv) the Certificate of Designation, each as in effect at the
Closing, and (v) the authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or delivered in connection
therewith.




          (o) Officer’s Certificate. The Company shall have delivered to the Purchasers a
certificate of an executive officer of the Company, dated as of the Closing Date, confirming the
accuracy of the Company’s representations, warranties and covenants as of the Closing Date and
confirming the compliance by the Company with the conditions precedent set forth in this
Section 4.2 as of the Closing Date.




24









 








          (p) Material Adverse Effect. There have been no events or occurrences on or before
the Closing Date which, individually or in the aggregate, have had or would reasonably be expected
to have a Material Adverse Effect.




ARTICLE V




Stock Certificate Legend




     Section 5.1 Legend. Each certificate representing the Preferred Shares, the
Underlying Preferred Shares and the Warrants, and, if appropriate, securities issued upon
conversion thereof, shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state securities or “blue sky”
laws):




THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”)
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE COMPANY SHALL HAVE
RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED.



     The Company agrees to reissue certificates representing any of the Conversion Shares and the
Warrant Shares, without the legend set forth above if at such time, prior to making any transfer of
any such securities, such holder thereof shall give written notice to the Company describing the
manner and terms of such transfer and removal as the Company may reasonably request. Such proposed
transfer and removal will not be effected until: (a) either (i) the Company has received an opinion
of counsel reasonably satisfactory to the Company, to the effect that the registration of the
Conversion Shares or the Warrant Shares under the Securities Act is not required in connection with
such proposed transfer, or (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and has become effective
under the Securities Act; and (b) either (i) the Company has received an opinion of counsel
reasonably satisfactory to the Company, to the effect that registration or qualification under the
securities or “blue sky” laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or “blue sky” laws has been
effected or a valid exemption exists with respect thereto. The Company will respond to any such
notice from a holder within five (5) business days. In the case of any proposed transfer under
this Section 5.1, the Company will use reasonable efforts to comply with any such
applicable state securities or “blue sky” laws, but shall in no event be required, (x) to qualify
to do business in any state where it is not then qualified, (y) to take any action that would
subject it to tax or to the general service of process in any state where it is not then subject,
or (z) to comply with state securities or “blue sky” laws of any state for which registration by
coordination is unavailable to the Company. The restrictions on transfer



25









 




contained in this Section 5.1 shall be in addition to, and not by way of limitation
of, any other restrictions on transfer contained in any other section of this Agreement. Whenever
a certificate representing the Conversion Shares or Warrant Shares is required to be issued to a
Purchaser without a legend, in lieu of delivering physical certificates representing the Conversion
Shares or Warrant Shares (provided that a registration statement under the Securities Act
providing for the resale of the Warrant Shares and Conversion Shares is then in effect), the
Company shall cause its transfer agent to electronically transmit the Conversion Shares or Warrant
Shares to a Purchaser by crediting the account of such Purchaser or such Purchaser’s Prime Broker
with the Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission
(“DWAC”) system (to the extent not inconsistent with any provisions of this Agreement).




ARTICLE VI




Indemnification




     Section 6.1 Indemnification of Purchasers. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, managers, partners, members,
shareholders, affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable
attorneys’ fees, charges and disbursements) incurred by the Purchasers as a result of any
inaccuracy in or breach of the representations, warranties or covenants made by the Company herein.



     Section 6.2 Indemnification Procedure. Any party entitled to indemnification under
this Article VI (an “indemnified party”) will give prompt written notice to the
party required to provide indemnification under this Article VI (the “indemnifying
party”) of any matters giving rise to a claim for indemnification; provided, that the
failure of any party entitled to indemnification hereunder to give notice as provided herein shall
not relieve the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to give prompt notice.
In case any action, proceeding or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to participate in
and, unless in the reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect to such action, proceeding or claim, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified party. In the event
that the indemnifying party advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or compromise, at its
sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time
after it commences such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying
party elects in writing to assume and does so assume the defense of any such claim, proceeding or
action, the indemnified party’s costs and expenses arising out of the defense, settlement or
compromise of any such action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying party in connection
with any negotiation or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the indemnified party
which



26









 




relates to such action or claim. The indemnifying party shall keep the indemnified party
fully apprised at all times as to the status of the defense or any settlement negotiations with
respect thereto. If the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel of its choice at
its sole cost and expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent. Notwithstanding anything
in this Article VI to the contrary, the indemnifying party shall not, without the
indemnified party’s prior written consent, settle or compromise any claim or consent to entry of
any judgment in respect thereof which imposes any future obligation on the indemnified party or
which does not include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of such claim. The
indemnification required by this Article VI shall be made by periodic payments of the
amount thereof during the course of investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred, so long as the indemnified party irrevocably agrees
to refund such moneys if it is ultimately determined by a court of competent jurisdiction that such
party was not entitled to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party against the
indemnifying party or others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.




     Section 6.3 Exclusive Remedy. After the Closing, the indemnities provided for herein
shall constitute the sole and exclusive remedy of any indemnified party for damages arising out of,
resulting from or incurred in connection with any claims related to this Agreement or arising out
of the issuance and sale of the Preferred Shares and the Warrants. In addition, the Lead Investor
hereby acknowledges and agrees that it shall not be entitled to any indemnification pursuant to
this Article VI to the extent that any breach of a representation, warranty or covenant of the
Company contained in this Agreement also constitutes a breach of a representation, warranty or
covenant of the Company or its subsidiary, Vision Acquisition Subsidiary, Inc., contained in
Article 3 of the Merger Agreement.



ARTICLE VII




Miscellaneous




     Section 7.1 Fees and Expenses. Irrespective of whether the Initial Closing is
effected, the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the Initial Closing is
effected, the Company shall, at the Initial Closing, reimburse the reasonable fees and
out-of-pocket expenses of one special counsel for the Lead Investor, not to exceed [$100,000] in
the aggregate, $10,000 of which has already been paid. If any action at law or in equity is
necessary to enforce or interpret the terms of the Transaction Documents, the prevailing party
shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.



     Section 7.2 Specific Enforcement, Consent to Jurisdiction.



          (a) The Company and the Purchasers acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement or the other



27









 






Transaction Documents were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled to seek an
injunction or injunctions to prevent or cure breaches of the provisions of this Agreement or the
Registration Rights Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be entitled by law or
equity.




          (b) Each of the Company and the Purchasers (i) hereby irrevocably submits to the jurisdiction
of the United States District Court sitting in the Southern District of New York and the courts of
the State of New York located in New York county for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees not to assert in any
such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing in
this Section 7.2 shall affect or limit any right to serve process in any other manner
permitted by law.




     Section 7.3 Entire Agreement; Amendment. This Agreement and the Transaction Documents
collectively contain the entire understanding and agreement of the parties with respect to the
matters covered hereby and, except as specifically set forth herein or in the Transaction
Documents, neither the Company nor any of the Purchasers makes any representations, warranty,
covenant or undertaking with respect to such matters and they supersede all prior understandings
and agreements with respect to said subject matter, all of which are merged herein. No provision
of this Agreement may be waived or amended other than by a written instrument signed by the Company
and the holders of at a majority of the Preferred Shares and Underlying Preferred Shares then
outstanding, and no provision hereof may be waived other than by an a written instrument signed by
the party against whom enforcement of any such amendment or waiver is sought. No such amendment
shall be effective to the extent that it applies to less than all of the holders of the Preferred
Shares and Underlying Preferred Shares then outstanding. No consideration shall be offered or paid
to any person to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of the parties to the
Transaction Documents or holders of Preferred Shares and Underlying Preferred Shares, as the case
may be.



     Section 7.4 Notices. Any notice, demand, request, waiver or other communication
required or permitted to be given hereunder shall be in writing and shall be effective (a) upon
hand delivery or by facsimile at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such communications shall
be:



28









 





	 	 	 
	If to the Company:

	 	1850 Embarcadero 

Palo Alto, CA 94303

Attn: Chief Executive Officer 

Facsimile: (650) 565-8601
	 
	 	 
	with copies to:

	 	Morrison & Foerster LLP 

755 Page Mill Road 

Palo Alto, California 94304-1018

Attn: Michael C. Phillips 

Facsimile: (650) 494-0792
	 
	 	 
	If to any Purchaser:

	 	At the address of such Purchaser set forth on Exhibit
A to this Agreement, with copies to Purchaser’s
counsel as set forth on Exhibit A or as specified in
writing by such Purchaser with copies to:






     Any party hereto may from time to time change its address for notices by giving at least ten
(10) days written notice of such changed address to the other party hereto.



     Section 7.5 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction Documents, whenever
any Purchaser exercises a material right, election, demand or option under a Transaction Document
and the Company does not timely perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights.



     Section 7.6 Waivers. No waiver by either party of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provisions, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.



     Section 7.7 Headings. The article, section and subsection headings in this Agreement
are for convenience only and shall not constitute a part of this Agreement for any other purpose
and shall not be deemed to limit or affect any of the provisions hereof.



     Section 7.8 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns.



     Section 7.9 No Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns and is not for the



29









 




benefit of, nor may any provision hereof be enforced by, any other person (other than the
indemnified parties under Article VI).




     Section 7.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving effect to any of the
conflicts of law principles which would result in the application of the substantive law of another
jurisdiction. This Agreement shall not be interpreted or construed with any presumption against
the party causing this Agreement to be drafted.



     Section 7.11 Survival. The representations and warranties of the Company and the
Purchasers shall survive the execution and delivery hereof and the Closings hereunder for a period
of one year following the last Closing Date.



     Section 7.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties hereto, it being
understood that all parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile or electronic transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is executed) the same with the
same force and effect as if such facsimile or electronic signature were the original thereof.



     Section 7.13 Publicity. The Company agrees that it will not disclose, and will not
include in any public announcement, the name of the Purchasers without the consent of the
Purchasers unless and until such disclosure is required by law or applicable regulation, and then
only to the extent of such requirement.



     Section 7.14 Severability. The provisions of this Agreement and the Transaction
Documents are severable and, in the event that any court of competent jurisdiction shall determine
that any one or more of the provisions or part of the provisions contained in this Agreement or the
Transaction Documents shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any other provision or
part of a provision of this Agreement or the Transaction Documents and such provision shall be
reformed and construed as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.



     Section 7.15 Further Assurances. From and after the date of this Agreement, upon the
request of any Purchaser or the Company, each of the Company and the Purchasers shall execute and
deliver such instrument, documents and other writings as may be reasonably necessary or desirable
to confirm and carry out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the Certificate of
Designation, the Registration Rights Agreement and the other Transaction Documents.



     Section 7.16 Breakup Fee. If, at any time after signing this Agreement but prior to
December 31, 2007, the Company accepts or approves any proposal for equity or debt financing



30









 




other than as contemplated by this Agreement, the Company shall pay the Lead Investor a fifty
thousand dollar ($50,000) break-up fee (the “Break-Up Fee”). Such Break-Up Fee shall be
paid to the Lead Investor by wire transfer within five (5) business days of the date of the
Company’s acceptance of the proposed equity or debt financing. Upon payment of the Break-Up Fee in
accordance with this Section 7.16, the Company and the Lead Investor shall not have any
further obligation or liability (including arising from such termination) to the other, and no
Purchaser will have any liability to any other Purchaser under the Transaction Documents as a
result therefrom.




[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




31









 





     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



	 	 	 	 	 
	NOVARAY MEDICAL, INC.

 	 
	By:  	/s/
Jack Price 	 
	 	Jack Price, Chief Executive Officer 	 


[Signature Page to Series A Stock Purchase Agreement]





32









 









     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



	 	 	 	 	 
	VISION OPPORTUNITY

MASTER FUND, LTD.

 	 
	By:  	/s/
Adam Benowitz	 
	 	Name:  	
Adam Benowitz 	 
	 	Title:  	Director 	 
	 



[Signature Page to Series A Stock Purchase Agreement]





33









 





     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



	 	 	 	 	 
	LYNDA WIJCIK

 	 
	By:  	/s/
Lynda Wijcik	 
	 	Name:  	Lynda Wijcik 	 
	 	Title:  	 	 
	 



[Signature Page to Series A Stock Purchase Agreement]




34









 









     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



	 	 	 	 	 
	COMMERCE AND INDUSTRY INSURANCE COMPANY,

 	 
	By:  	AIG Global Investment Corp.,
 	 
	 	its investment advisor 	 
	 	 
	By:  	/s/
F.T. Chong 	 
	 	Name:  	F.T. Chong 	 
	 	Title:  	Managing
Director 	 
	 




[Signature Page to Series A Stock Purchase Agreement]



35









 





     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



	 	 	 	 	 
	AIU INSURANCE COMPANY,

 	 
	By:  	AIG Global Investment Corp.,
 	 
	 	its investment advisor 	 
	 	 	 
	By:  	/s/
F.T. Chong  	 
	 	Name:  	F.T. Chong  	 
	 	Title:  	Managing
Director 	 
	 



[Signature Page to Series A Stock Purchase Agreement]




36









 









     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



AIG PRIVATE EQUITY PORTFOLIO, L.P.,




By: AIG PEP GP, L.P., its General Partner




By: AIG PEP, LLC, its General Partner




By: AIG Global Investment Corp., its Sole Member




	 	 	 	 	 
	By:  	/s/
F.T. Chong 	 
	 	Name:  	
F.T. Chong	 
	 	Title:  	Managing
Director 	 
	 



[Signature Page to Series A Stock Purchase Agreement]





37











 





     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.






	 	 	 	 	 
	AIG HORIZON PARTNERS FUND, L.P.,
 	 	 
	 	 	 
	 	 	 
	By:	AIG Horizon Partners GP, L.P., its General Partner

 	 	 
	By: 	AIG Horizon Partners LLC, its General Partner	 	 
	 	 	 	 
	By:  	AIG Global Investment Corp., its Managing Member
 	 	 
	 	 	 
	By: 	/s/
F.T. Chong
 	 	 
	 	Name:  	
F.T. Chong 	 	 
	 	Title:  	Managing
Director 	 	 
	 



[Signature Page to Series A Stock Purchase Agreement]





38









 









     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.






	 	 	 	 	 
	AIG HORIZON SIDE-BY-SIDE FUND, L.P.,
 	 	 
	 	 	 
	By:	AIG Horizon SBS GP, L.P.,

its General Partner
 	 	 
	 
	By:  	 AIG Horizon Partners, LLC,

its General Partner
 	 	 
	 	 	 
	By:  	
AIG Global Investment Corp.,

its Managing Member
 	 	 
	 
	By:  	
/s/
F.T. Chong 	 	 
	 	Name:  	
F.T. Chong 	 	 
	 	Title:  	Managing
Director 	 	 
	 



[Signature Page to Series A Stock Purchase Agreement]





39









 









     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



	 	 	 	 	 
	WHEATLEY MEDTECH PARTNERS, L.P.

 	 	 
	By:  	/s/
Barry Rubenstein	 	 
	 	Name:  	Barry Rubenstein 	 	 
	 	Title:  	CEO,
Wheatley Medtech Partners, LLC 	 	 
	 	 	General
Partner 	 	 
	 



[Signature Page to Series A Stock Purchase Agreement]





40









 









     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



	 	 	 	 	 
	LLOYD INVESTMENTS, L.P.

 	 	 
	By:  	
/s/ L.J. Lloyd	 	 
	 	Name:  	L.J. Lloyd 	 	 
	 	Title:  	GP 	 	 
	 



[Signature Page to Series A Stock Purchase Agreement]





41









 









     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



	 	 	 	 	 
	HEARTSTREAM CAPITAL B.V..

 	 	 
	By:  	
/s/ George J.M. Hersbach	 	 
	 	Name:  	George J.M. Hersbach	 	 
	 	Title:  	President
& CEO 	 	 
	 



[Signature Page to Series A Stock Purchase Agreement]





42









 









     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



	 	 	 	 	 
	BIOBRIDGE LLC

 	 	 
	By:  	
/s/ Lynda Wijcik	 	 
	 	Name:  	Lynda Wijcik 	 	 
	 	Title:  	Managing
Partner 	 	 
	 



[Signature Page to Series A Stock Purchase Agreement]





43









 









     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officer as of the date first above written.



	 	 	 	 	 
	ARIE JACOB MANINTVELD

 	 	 
	By:  	
/s/ Arie Jacob Manintveld	 	 
	 	Name:  	Arie Jacob Manintveld	 	 
	 	Title:  	 	 	 
	 



[Signature Page to Series A Stock Purchase Agreement]





44











 





EXHIBIT A TO THE

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NOVARAY MEDICAL, INC.




PURCHASERS




	 	 	 	 	 	 	 
	Names and Addresses	 	 	 	 
	of Purchasers and	 	Number of Preferred	 	Dollar Amount
	Purchasers’ Counsel	 	Shares & Warrants Purchased	 	Of Investment
	 
	 
	Vision Opportunity 

Master Fund, Ltd. 

20 West 55th Street 

5th Floor 

New York, NY 10019

Attn: Antti Uusiheimala

	 	3,745,319 Preferred Shares 

Series A Warrants: 1,248,439

Series J Warrants: 2,309,469

Series J-A Warrants: 769,823
	 	$	10,000,001.73	 
	 
	 	 	 	 	 	 
	Sadis & Goldberg LLP, 

551 Fifth Avenue, 21st Floor 

New York, New York 10176

Attn: Paul Fasciano
	 	 	 	 	 	 
	 





NOVARAY NOTE HOLDERS




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Number of Preferred
	 	 	NovaRay Note	 	Interest	 	Shares & Series A
	Name of NovaRay Note Holder	 	Principal Amount	 	Payment	 	Warrants
	Lynda Wijcik
	 	$	325,577.13	(1)	 	$	2,879.93	 	 	 	Preferred Shares:
	15941 Overlook Way
	 	 	 	 	 	 	 	 	 	 	121,939	 
	Los Gatos, CA 95070
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	 
	 	 	 	 	 	 	 	 	 	 	40,646	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Commerce and Industry Insurance Company
	 	$	582,658.08	(2)	 	$	5,532.16	 	 	 	Preferred Shares:
	 
	 	 	 	 	 	 	 	 	 	 	218,224	 
	277 Park Avenue, 43rd Floor
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	New York, New York 10172
	 	 	 	 	 	 	 	 	 	 	72,741	 
	Attn: F.T. Chong 

Fax: (646) 857-8842
	 	 	 	 	 	 	 	 	 	 	 	 







 









 






	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Number of Preferred
	 	 	NovaRay Note	 	Interest	 	Shares & Series A
	Name of NovaRay Note Holder	 	Principal Amount	 	Payment	 	Warrants
	AIU Insurance Company
	 	$	308,232.81	(3)	 	$	2,842.03	 	 	 	Preferred Shares:
	277 Park Avenue, 43rd Floor
	 	 	 	 	 	 	 	 	 	 	115,443	 
	New York, New York 10172
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	Attn: F.T. Chong 
	 	 	 	 	 	 	 	 	 	 	38,481	 
	Fax: (646) 857-8842
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	
AIG Private Equity Portfolio, L.P.
	 	$	102,439.89	(3)	 	$	944.03	 	 	 	Preferred Shares:
	277 Park Avenue, 43rd Floor
	 	 	 	 	 	 	 	 	 	 	38,367	 
	New York, New York 10172
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	Attn: F.T. Chong
	 	 	 	 	 	 	 	 	 	 	12,789	 
	Fax: (646) 857-8842
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	AIG Horizon Partners Fund L.P.
	 	$	58,537.08	(3)	 	$	539.44	 	 	 	Preferred Shares:
	277 Park Avenue, 43rd Floor
	 	 	 	 	 	 	 	 	 	 	21,924	 
	New York, New York 10172
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	Attn: F.T. Chong
	 	 	 	 	 	 	 	 	 	 	7,308	 
	Fax: (646) 857-8842
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	AIG Horizon Side-by-Side Fund L.P.
	 	$	130,792.62	(3)	 	$	1,206.50	 	 	 	Preferred Shares:
	277 Park Avenue, 43rd Floor
	 	 	 	 	 	 	 	 	 	 	48,986	 
	New York, New York 10172
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	Attn: F.T. Chong
	 	 	 	 	 	 	 	 	 	 	16,328	 
	Fax: (646) 857-8842
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Wheatley MedTech Partners, L.P.
	 	$	367,670.21	(4)	 	$	3,398.17	 	 	 	Preferred Shares:
	Attn: David R.
	 	 	 	 	 	 	 	 	 	 	142,632	 
	Dantzker, M.D.
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	825 Third Ave. 32nd Floor
	 	 	 	 	 	 	 	 	 	 	47,544	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Lloyd Investments, L.P.
	 	$	65,329.56	(3)	 	$	604.06	 	 	 	Preferred Shares:
	Attn: Jack Lloyd
	 	 	 	 	 	 	 	 	 	 	24,468	 
	7 Haciendas Road
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	Orinda, CA 94563-1714
	 	 	 	 	 	 	 	 	 	 	8,156	 







 









 






	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Number of Preferred
	 	 	NovaRay Note	 	Interest	 	Shares & Series A
	Name of NovaRay Note Holder	 	Principal Amount	 	Payment	 	Warrants
	Heartstream Capital B.V.
	 	$	580,769.86	(5)	 	$	5,065.76	 	 	 	Preferred Shares:
	Attn: George J.M. Hersbach
	 	 	 	 	 	 	 	 	 	 	271,896	 
	President & CEO
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	Gooise Poort
	 	 	 	 	 	 	 	 	 	 	90,632	 
	Gooimeer 3 - 25

1411 DC Naarden 

Netherlands
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	BioBridge LLC
	 	$	211,745.95	(6)	 	$	1,843.09	 	 	 	Preferred Shares:
	Attn: Lynda Wijcik
	 	 	 	 	 	 	 	 	 	 	99,132	 
	15941 Overlook Dr.
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	Los Gatos, CA 95070
	 	 	 	 	 	 	 	 	 	 	33,044	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Arie Jacob Manintveld
	 	$	210,519.89	(7)	 	$	1,841.76	 	 	 	Preferred Shares:
	c/o Heartstream Capital BV
	 	 	 	 	 	 	 	 	 	 	98,558	 
	Gooise Poort
	 	 	 	 	 	 	 	 	 	Series A Warrants:
	Gooimeer 3 — 25
	 	 	 	 	 	 	 	 	 	 	32,852	 
	1411 DC Naarden  

Netherlands
	 	 	 	 	 	 	 	 	 	 	 	 









 




			
	(1)	 	Represents principal and accrued interest through November 15, 2007 owed to such NovaRay Note
Holder pursuant to a NovaRay Note dated August 13, 2004 and a NovaRay Note dated June 21, 2005
(in the amount of $222,125.31).
	 
	(2)	 	Represents principal and accrued interest through November 15, 2007 owed to such NovaRay Note
Holder pursuant to a NovaRay Note dated June 24, 2004 (in the amount of $268,022.61) and a
NovaRay Note dated June 21, 2005 (in the amount of $314,635.47).
	 
	(3)	 	Represents principal and accrued interest through November 15, 2007 owed to such NovaRay Note
Holder pursuant to a NovaRay Note dated June 21, 2005.
	 
	(4)	 	Represents principal and accrued interest through November 15, 2007 owed to such NovaRay Note
Holder pursuant to a NovaRay Note dated June 15, 2004 (in the amount of $53,715.06), a NovaRay
Note dated June 21, 2005 (in the amount of $261,326.25) and a NovaRay Note dated March 20,
2007 (in the amount of $52,628.90, which amount is convertible at a 20% discount to the
purchase price of $2.67 per Preferred Share).
	 
	(5)	 	Represents principal and accrued interest through November 15, 2007 owed to such NovaRay Note
Holder pursuant to a NovaRay Note dated February 20, 2007 (in the




 









 









			
	 	 	amount of $317,621.06) and a NovaRay Note dated March 20, 2007 (in the amount of
$263,148.79), both of which are convertible at a 20% discount to the purchase price of $2.67
per Preferred Share.
	 
	(6)	 	Represents principal and accrued interest through November 15, 2007 owed to such NovaRay Note
Holder pursuant to a NovaRay Note dated February 20, 2007, which amount is convertible at a
20% discount to the purchase price of $2.67 per Preferred Share.
	 
	(7)	 	Represents principal and accrued interest through November 15, 2007 owed to such NovaRay Note
Holder pursuant to a NovaRay Note dated March 20, 2007, which amount is convertible at a 20%
discount to the purchase price of $2.67 per Preferred Share.






 











 





EXHIBIT B to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NOVARAY MEDICAL, INC.




FORM OF CERTIFICATE OF DESIGNATION















 








EXHIBIT C-1 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NOVARAY MEDICAL, INC.




FORM OF SERIES A WARRANT














 





EXHIBIT C-2 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NOVARAY MEDICAL, INC.




FORM OF SERIES J WARRANT














 





EXHIBIT C-3 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NOVARAY MEDICAL, INC.




FORM OF SERIES J-A WARRANT














 





EXHIBIT D to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NOVARAY MEDICAL, INC.




FORM OF REGISTRATION RIGHTS AGREEMENT




D-1









 





EXHIBIT E-1 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NOVARAY MEDICAL, INC.




FORM OF STOCKHOLDER LOCK-UP AGREEMENT




E-1-1









 





EXHIBIT E-2 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NOVARAY MEDICAL, INC.




FORM OF AIG LOCK-UP AGREEMENT




E-2-1









 





EXHIBIT F to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NOVARAY MEDICAL, INC.




FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS




as of ____________, 2007          




Registrar and Transfer Company

Attn: William Saeger

10 Commerce Drive

Cranford, New Jersey 07016




Ladies and Gentlemen:




     Reference is made to that certain Series A Convertible Preferred Stock Purchase Agreement (the
“Purchase Agreement”), dated as of December 27, 2007, by and among NovaRay Medical, Inc., a
Delaware corporation (the “Company”), and the purchasers named therein (collectively, the
“Purchasers”) pursuant to which the Company is issuing to the Purchasers shares (the
“Preferred Shares”) of its Series A Convertible Preferred Stock, par value $0.0001 per
share (the “Preferred Stock”), and warrants (the “Warrants”) to purchase Preferred
Stock and/or shares of the Company’s common stock, $0.0001 per share (the “Common Stock”),
as the case may be. This letter shall serve as our irrevocable authorization and direction to you
provided that you are the transfer agent of the Company at such time) to issue (a) shares of Common
Stock upon conversion of the Preferred Shares or Underlying Preferred Shares (the “Conversion
Shares”) and (b) Common Stock and/or Preferred Stock (as the case may be) upon exercise of the
Warrants (the “Warrant Shares”) to or upon the order of a Purchaser from time to time upon
(i) surrender to you of a properly completed and duly executed Conversion Notice or Exercise
Notice, as the case may be, in the form attached hereto as Exhibit I and Exhibit
II, respectively, (ii) in the case of the conversion of Preferred Shares or Underlying
Preferred Shares, a copy of the certificates (with the original certificates delivered to the
Company) representing Preferred Shares or Underlying Preferred Shares being converted or, in the
case of Warrants being exercised, a copy of the Warrants (with the original Warrants delivered to
the Company) being exercised (or, in each case, an indemnification undertaking with respect to such
share certificates or the warrants in the case of their loss, theft or destruction), and (iii)
delivery of a treasury order or other appropriate order duly executed by a duly authorized officer
of the Company. So long as you have previously received (x) written confirmation from counsel to
the Company that a registration statement covering resales of the Conversion Shares or Warrant
Shares, as applicable, has been declared effective by the Securities and Exchange Commission (the
“SEC”) under the Securities Act of 1933, as amended (the “1933 Act”), and no
subsequent notice by the Company or its counsel of the suspension or termination of its
effectiveness and (y) a copy of such registration statement, and if the Purchaser represents in
writing that the Conversion Shares or the Warrant Shares, as the case may be, were sold pursuant to
the Registration Statement and that a prospectus was delivered in accordance prospectus delivery
requirements under the 1933 Act, then certificates representing the Conversion Shares and the
Warrant Shares, as the case may be, shall not bear any legend restricting transfer of the
Conversion Shares and the Warrant Shares, as the case may be, thereby and should not be subject



F-1









 




to any stop-transfer restriction. Provided, however, that if you have not
previously received those items and representations listed above, then the certificates for the
Conversion Shares and the Warrant Shares shall bear the following legend:





     “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR NOVARAY
MEDICAL, INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER
THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.”


and, provided further, that the Company may from time to time notify you to place
stop-transfer restrictions on the certificates for the Conversion Shares and the Warrant Shares in
the event a registration statement covering the Conversion Shares and the Warrant Shares is subject
to amendment for events then current.




     A form of written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares and the Warrant Shares has been declared effective by the
SEC under the 1933 Act is attached hereto as Exhibit III.



     Please be advised that the Purchasers are relying upon this letter as an inducement to enter
into the Purchase Agreement and, accordingly, each Purchaser is a third party beneficiary to these
instructions.



     Please execute this letter in the space indicated to acknowledge your agreement to act in
accordance with these instructions. Should you have any questions concerning this matter, please
contact me at ________.



	 	 	 	 	 
	 	Very truly yours,

NovaRay Medical, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	Jack Price 	 
	 	 	Title:  	Chief Executive Officer 	 
	 



	 	 	 	 	 
	ACKNOWLEDGED AND AGREED:

REGISTRAR AND TRANSFER COMPANY

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 



Date: ____________




F-2









 








EXHIBIT I




NOVARAY MEDICAL, INC.

CONVERSION NOTICE



Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the
Series A Preferred Stock of NovaRay Medical, Inc. (the “Certificate of Designation”). In
accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to
convert the number of shares of Series A Preferred Stock, par value $0.0001 per share (the
“Preferred Shares”), of NovaRay Medical, Inc. a Delaware corporation (the
“Company”), indicated below into shares of Common Stock, par value $0.0001 per share (the
“Common Stock”), of the Company, by tendering the stock certificate(s) representing the
share(s) of Preferred Shares specified below as of the date specified below.





     Date of Conversion:



     Number of Preferred Shares to be converted:



     Stock certificate no(s). of Preferred Shares to be converted:



     The Common Stock has been sold pursuant to the Registration Statement (as defined in the
Registration Rights Agreement): YES ___   NO ___


     Please confirm the following information:



     Conversion Price:




Number of shares of Common Stock
to be issued:


Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on
the Date of Conversion: __________________



Please issue the Common Stock into which the Preferred Shares are being converted and, if
applicable, any check drawn on an account of the Company in the following name and to the following
address:





Issue to:




Facsimile Number:




Authorization:



	 	 	 	 	 
	 	 	 
	 	By:  	
 	 
	 	 	Title: 	 
	 	 	 	 
	 




     Dated:



 









 





EXHIBIT II




FORM OF EXERCISE NOTICE




EXERCISE FORM




NOVARAY MEDICAL, INC.



The undersigned _________, pursuant to the provisions of the within Warrant, hereby elects to
purchase ____ shares of Common Stock or Series A Preferred Stock (as applicable) of NovaRay
Medical, Inc. covered by the within Warrant.




	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 	 	Signature	 	 	 	 
	 

	 	 

	 	 
	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Address	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 	 	 

	 	 





Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on
the date of Exercise: _______________




ASSIGNMENT



FOR VALUE RECEIVED, _________ hereby sells, assigns and transfers unto ______________
the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint
_________, attorney, to transfer the said Warrant on the books of the within named corporation.




	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 	 	Signature	 	 	 	 
	 

	 	 

	 	 
	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Address	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 	 	 

	 	 






PARTIAL ASSIGNMENT



FOR VALUE RECEIVED, _________ hereby sells, assigns and transfers unto _________
the right to purchase ______ shares of Warrant Stock evidenced by the within Warrant together
with all rights therein, and does irrevocably constitute and appoint _______________, attorney,
to transfer that part of the said Warrant on the books of the within named corporation.




	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 	 	Signature	 	 	 	 
	 

	 	 

	 	 
	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Address	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 	 	 

	 	 






 









 






FOR USE BY THE ISSUER ONLY:



This Warrant No. W-____ canceled (or transferred or exchanged) this ____ day of _______,
____, shares of Common Stock or Series A Preferred Stock (as applicable) issued therefor in the
name of ______, Warrant No. W-____ issued for ____ shares of Common Stock or Series A
Preferred Stock (as applicable) in the name of _________.





 









 








EXHIBIT III




FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT




[INSERT TRANSFER AGENT INFO]




          Re:   NovaRay Medical, Inc.



Ladies and Gentlemen:




     We are counsel to NovaRay Medical, Inc., a Delaware corporation (the “Company”), and
have represented the Company in connection with that certain Series A Convertible Preferred Stock
and Warrant Purchase Agreement (the “Purchase Agreement”), dated as of December 27, 2007,
by and among the Company and the purchasers named therein (collectively, the “Purchasers”)
pursuant to which the Company issued to the Purchasers shares (the “Preferred Shares”) of
its Series A Convertible Preferred Stock, par value $0.0001 per share (the “Preferred
Stock”) and warrants (the “Warrants”) to purchase shares of the Company’s common stock,
par value $0.0001 per share (the “Common Stock”) and/or Preferred Stock, as applicable.
Pursuant to the Purchase Agreement, the Company has also entered into a Registration Rights
Agreement with the Purchasers (the “Registration Rights Agreement”), dated as of December
27, 2007, pursuant to which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock
issuable upon conversion of the Preferred Shares and exercise of the Warrants, under the Securities
Act of 1933, as amended (the “1933 Act”). In connection with the Company’s obligations
under the Registration Rights Agreement, on ______, 200_, the Company filed a
Registration Statement on Form SB-2 (File No. 333-___) (the “Registration Statement”)
with the Securities and Exchange Commission (the “SEC”) relating to the resale of the
Registrable Securities which names each of the present Purchasers as a selling stockholder
thereunder.



     In connection with the foregoing, we advise you that a member of the SEC’s staff has advised
us by telephone that the SEC has entered an order declaring the Registration Statement effective
under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no
knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending
its effectiveness has been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and accordingly, the Registrable Securities are available for resale under
the 1933 Act pursuant to the Registration Statement.



	 	 	 	 	 
	 	Very truly yours,


MORRISON & FOERSTER, LLP

 	 
	 	By:  	
 	 
	 	 	 	 
	 	 	 	 



cc:   [LIST NAMES OF PURCHASERS]




 









 





EXHIBIT G to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NOVARAY MEDICAL, INC.




FORM OF OPINION OF COUNSEL





	1.	 	The Company is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware. The Company has the requisite corporate power to own its
properties and to conduct its business as it is currently being conducted.
	 
	2.	 	The Company has the corporate power and authority to execute and deliver and to perform its
obligations under the Documents. The Documents have been duly authorized, executed and
delivered by the Company and constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.
	 
	3.	 	The Preferred Shares to be received by each Purchaser pursuant to the Agreement, the shares
of the Company’s Common Stock issuable upon exercise of the Series A Warrants and Series J-A
Warrant, and the shares of the Company’s Series A Convertible Preferred Stock issuable upon
exercise of the Series J Warrant have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms of the Agreement, or the Warrants, as
applicable, will be validly issued, fully paid and nonassessable. The Company’s Common Stock
issuable upon the (i) conversion of (a) the Preferred Shares and (b) the shares of the
Company’s Series A Convertible Preferred Stock issuable upon exercise of the Series J Warrant
and (ii) exercise of the Series A Warrants and Series J-A Warrant has been duly authorized for
issuance and validly reserved by all necessary corporate action of the Company and, when
issued in accordance with the Amended and Restated Certificate and the terms of the Warrants,
will be validly issued, fully paid and nonassessable.
	 
	4.	 	The execution, delivery and performance of the Documents by the Company and the issuance of
the Preferred Shares and the Warrants as contemplated by the Agreement and the Warrants (i) do
not violate any provision of the Amended and Restated Certificate or Bylaws of the Company,
(ii) do not violate any law, rule or regulation applicable to the Company, and (iii) except as
set forth in the Agreement and the Opinion Certificate, do not violate or constitute a default
under the provisions of any judgment, decree, order or material agreement to which the Company
is a party, except, in all cases other than violations pursuant to clause (i) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations and violations as
would not result, individually or in the aggregate, in any material adverse change in the
assets, financial condition or operations of the Company.
	 
	5.	 	Assuming the filing of a Form D in accordance with Regulation D under the Securities Act of
1933, as amended (the “Securities Act”), the offer and sale of the Preferred Shares and the
Warrants pursuant to the terms of the Agreement are exempt from registration under the
Securities Act.




 









 












	6.	 	All consents, approvals, orders or authorizations of, and all qualifications, registrations
or filings with, any federal or State of New York governmental authority on the part of the
Company required in connection with the consummation of the transactions contemplated by the
Agreement, except for the filing of a Form D in accordance with Regulation D under the
Securities Act, have been made or obtained.
	 
	7.	 	To our knowledge, no action, investigation or proceeding is pending or overtly threatened
against the Company before any court or administrative agency which questions the validity of
the Agreement or the transactions contemplated thereby or which might result, either
individually or in the aggregate, in any material adverse change in the assets, financial
condition or operations of the Company.