exv10w4



 





Exhibit 10.4




CONSULTING AGREEMENT




     This Consulting Agreement (this “Agreement”) is made as of October 2, 2007 by and between
NovaRay, Inc. (the “Company”) and Fountainhead Capital Partners Limited (“Consultant”) (each a
“Party” and collectively referred to hereafter as the “Parties”).



WITNESSETH:




     WHEREAS, the Company and Consultant previously entered into a letter of interest agreement
dated April 27, 2006 (the “LOI Agreement”), pursuant to which Consultant agreed to provide certain
services to the Company.



     WHEREAS, the Company and Consultant wish to terminate the LOI Agreement and replace it with
this Agreement.



     WHEREAS, the Company is desirous of completing a “reverse merger” transaction whereby a public
shell company to be identified (“PubCo”) will acquire by merger the business of the Company (the
“Reverse Merger”), and, concurrently therewith, a financing with aggregate proceeds to the Company
or its successors of not less than $12,000,000 (the “Financing,” and with the Reverse Merger,
collectively the “Proposed Transaction”).



     WHEREAS, Consultant has substantial expertise and experience in the area of “reverse mergers”
and related transactions.



     WHEREAS, to further facilitate pursuing the Proposed Transaction, the Company desires to
engage Consultant to serve as a consultant to provide advice related to the Proposed Transaction on
the terms and for the services specified in this Agreement.



     NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and
for other good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Parties, intending to be legally bound, hereby agree in good faith as follows:



     1. Services. The services which Consultant shall provide under this Agreement shall
include the following (collectively, the “Services”):



          (a) Consultant will work with the Company to identify the PubCo for the Reverse Merger;




          (b) Consultant will assist the Company in negotiating the terms of the Reverse Merger;




          (c) Consultant will assist the Company in identifying potential investors which might have an
interest in participating in the Financing; and




          (d) Consultant will assist the Company in negotiating the terms of the Financing.




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     2. Restrictions. In connection with its provision of the Services, the Consultant
agrees that:



          (a) the Consultant shall not engage in any general solicitation, general advertising or other
activity that would jeopardize the availability of the exemption from registration under the
Securities Act of 1933, as amended, pursuant to Regulation D promulgated thereunder and the
qualification or registration requirements of any applicable state or foreign securities or blue
sky laws or regulations;




          (b) the Company shall determine, in its sole and absolute discretion, when it will consummate
the Reverse Merger with PubCo, which investors shall participate in the Financing; the price,
amount and terms of the securities to be sold in the Financing; the allocation of securities among
investors in the Financing; and whether or not to consummate the Proposed Transaction; and




          (c) the Company shall have no authority to make offers to sell the Company’s securities, make
any representations or warranties on the Company’s behalf or bind the Company in any way.




     3. Termination of LOI Agreement. The LOI Agreement is terminated and replaced by this
Agreement. No sections of the LOI Agreement shall survive the termination of the LOI Agreement and
no sections of the LOI Agreement shall be of any further force or effect.



     4. Term and Termination; Survival.



          (a) The term of this engagement shall be for a period commencing with the date of this
Agreement and terminating on the earlier of (i) the closing date of the Financing or (ii) December
31, 2007. The term may only be extended upon the mutual written agreement of the Parties.




          (b) Section 6 (Taxes), Section 7 (Independent Contractor), Section 8 (Indemnification),
Section 9 (Nonsolicitation), and Section 10 (Confidentiality) will survive termination of this
Agreement.




     5. Fees. In connection with the Services described above, the Company shall pay to
Consultant the following compensation (referred to herein as the “Consulting Fees”):



          (a) if the Proposed Transaction is consummated, (i) a cash fee in the amount of $600,000,
payable at closing of the Financing; (ii) 463,697 shares (the “Consultant Shares”) of the Company’s
common stock (the “Common Stock”); and (iii) warrant to purchase 200,000 shares of Common Stock at
a price of $12.75 per share exercisable in whole or in part over a period of five years from the
date of issuance (the “Consultant Warrants” and with the Consultant Shares, the “Consultant
Securities”). The Company will issue the Consultant Securities to Consultant pursuant to
securities purchase agreements in a form reasonably acceptable to the Company and Consultant
immediately prior to the Reverse Merger; provided, however, that such agreements shall provide that
the Company shall have the right to redeem all of the Consultant Securities at a redemption price
equal to $0.001 per share in the event that the Proposed Transaction is not consummated prior to
the termination of this Agreement. The




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exercise price of the Consultant Warrants assumes a conversion price for the convertible
debentures to be issued to new investors in the Financing of $2.00. The exercise price will be
adjusted accordingly if the conversion price is other than $2.00; and




          (b) if the Financing is consummated but the Reverse Merger is not consummated, (a) a cash fee
payable at closing of the Financing in the amount of 10% of the aggregate purchase price paid by
the purchasers in the Financing that the Consultant first introduced to the Company, and (b) a
warrant to purchase that number of shares of Common Stock (or such other security sold in the
Financing) equal to 10% of the aggregate number of shares of Common Stock or such other security
sold in the Financing (the “Financing Warrants”). The Financing Warrants shall have an exercise
price per share equal to the price per share paid by the investors in the Financing and an exercise
period of five years. Notwithstanding the foregoing, if, at any time during the 24-month period
following consummation of the Financing the Company elects to pursue a Reverse Merger, the
Consultant shall have the right to act as an adviser to the Company to identify a prospective
public shell company for such transaction on such terms and conditions as shall be negotiated by
the Parties in good faith.




     6. Taxes. Consultant is ultimately liable and responsible for all taxes owed by the
Consultant in connection with the Consulting Fees, regardless of any action the Company or its
successors takes with respect to any tax withholding or reporting obligations that arise in
connection with the Consulting Fees. Neither the Company nor it successors makes any
representation or undertaking regarding the tax treatment of the Consulting Fees or tax treatment
of the issuance, exercise or subsequent sale of the Consultant Securities or the Financing
Warrants. The Company and its successors do not commit and are under no obligation to structure
the Consulting Fees to reduce or eliminate any of Consultant’s tax liability.



     7. Independent Contractor. It is the express intention of the Company and Consultant
that Consultant perform the Services as an independent contractor to the Company. Nothing in this
Agreement shall in any way be construed to constitute Consultant as an agent, employee or
representative of the Company. Without limiting the generality of the foregoing, Consultant is not
authorized to bind the Company to any liability or obligation or to represent that Consultant has
any such authority. Consultant agrees that it will be responsible for all expenses it incurs in
providing the Services pursuant to the terms of this Agreement.



     8. Indemnification. Consultant agrees to indemnify and hold harmless the Company and
its directors, officers and employees from and against all taxes, losses, damages, liabilities,
costs and expenses, including attorneys’ fees and other legal expenses, arising directly or
indirectly from or in connection with (i) any reckless or intentionally wrongful act of Consultant
or Consultant’s assistants, employees or agents, (ii) a determination by a court or agency that the
Consultant is not an independent contractor, (iii) any breach by the Consultant or Consultant’s
assistants, employees or agents of any of the covenants contained in this Agreement, (iv) any
failure of Consultant to perform the Services in accordance with all applicable laws, rules and
regulations, or (v) any violation or claimed violation of a third party’s rights resulting in whole
or in part from the Company’s use of the work product of Consultant under this Agreement.



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     9. Nonsolicitation. From the date of this Agreement until 12 months after the
termination of this Agreement (the “Restricted Period”), Consultant will not, without the Company’s
prior written consent, directly or indirectly, solicit or encourage any employee or contractor of
the Company or its affiliates to terminate employment with, or cease providing services to, the
Company or its affiliates. During the Restricted Period, Consultant will not, whether for
Consultant’s own account or for the account of any other person, firm, corporation or other
business organization, intentionally interfere with any person who is or during the period of
Consultant’s engagement by the Company was a partner, supplier, customer or client of the Company
or its affiliates.



     10. Confidentiality. Consultant (i) shall treat and hold in strict confidence any
Company Confidential Information (as defined below), (ii) shall not use any of the Company
Confidential Information except in connection with this Agreement, and (iii) if this Agreement is
terminated for any reason whatsoever, shall return to the Company all tangible embodiments (and all
copies) thereof which are in its possession. For purposes of this Agreement, “Company Confidential
Information” means any confidential or proprietary information of the Company that is furnished to
the Consultant by the Company in connection with this Agreement that is marked or described as,
identified in writing as, or provided under circumstances indicating it is, confidential or
proprietary; provided, however, that it shall not include any information that (A)
is or becomes publicly known through no act or omission of the Consultant; (B) was rightfully known
by without confidential or proprietary restriction before receipt from the Company, as evidenced by
Consultant’s contemporaneous written records; or (C) becomes rightfully known to Consultant without
confidential or proprietary restriction from a source other than the Company that does not owe a
duty of confidentiality to the Company with respect to such Company Confidential Information.



     11. Notices. All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder
shall be deemed duly delivered four business days after it is sent by registered or certified mail,
return receipt requested, postage prepaid, or one business day after it is sent for next business
day delivery via a reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:



	 	 	 
	          If to Company:

	 	Copy to:
	 
	 	 
	          NovaRay, Inc.

	 	Morrison & Foerster LLP
	          1850 Embarcadero Road

	 	755 Page Mill Road
	          Palo Alto, CA 94303

	 	Palo Alto, CA 94304
	          Attention: Marc C. Whyte

	 	Facsimile: (650) 494-0792
	 

	 	Attention: Michael C. Phillips
	 
	 	 
	          If to the Consultant:

	 	Copy to:
	 
	 	 
	          Fountainhead Capital Partners Limited

	 	Law Offices of Robert Diener
	          Portman House

	 	122 Ocean Park Boulevard
	          Hue Street, St. Helier

	 	Suite 307
Santa Monica, California 90405






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	          Jersey JE4 5RP

	 	Facsimile: (310) 362-8887
	          Attention: Richard Breeze 
	 	Attention: Robert Diener
	 

	 	 





Any Party may give any notice, request, demand, claim or other communication hereunder using any
other means (including personal delivery, expedited courier, messenger service, telecopy, telex,
ordinary mail or electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it actually is received by
the party for whom it is intended. Any party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.




     12. Miscellaneous.



          (e) Entire Agreement. This Agreement constitutes the entire agreement among the
Parties and supersedes any prior understandings, agreements or representations by or among the
Parties, written or oral, with respect to the subject matter hereof.




          (f) Succession and Assignment. This Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of its rights, interests or obligations hereunder
without the prior written approval of the other party.




          (g) Counterparts and Facsimile Signature. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which together shall
constitute one and the same instrument. This Agreement may be executed by facsimile signature.




          (h) Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation of this Agreement.




          (i) Governing Law. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of California without giving effect to any choice or conflict
of law provision or rule (whether of the State of California or any other jurisdiction) that would
cause the application of laws of any jurisdictions other than those of the State of California.




          (j) Amendments and Waivers. The Parties may mutually amend any provision of this
Agreement at any time during the term of this Agreement prior to the termination of this Agreement.
No amendment of any provision of this Agreement shall be valid unless the same shall be in writing
and signed by the Parties. No waiver of any right or remedy hereunder shall be valid unless the
same shall be in writing and signed by the party giving such waiver. No waiver by any party with
respect to any default, misrepresentation or breach of warranty or covenant hereunder shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.




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          (k) Attorneys’ Fees. In any court action at law or equity that is brought by one of
the parties to this Agreement to enforce or interpret the provisions of this Agreement, the
prevailing party will be entitled to reasonable attorneys’ fees, in addition to any other relief to
which that party may be entitled.




          (l) Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other jurisdiction. If the final
judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid
or unenforceable, the Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to limit the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a term or provision that
is valid and enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so modified.




          (m) Construction. The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of strict construction
shall be applied against any party. Any reference to any federal, state, local or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise.




          (n) Remedies. In the event of any dispute under this Agreement, the prevailing party
shall be entitled to recover its costs incurred in connection with the resolution thereof,
including reasonable attorneys fees.




(signatures follow)




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     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as an instrument
under seal as of the date first written above.



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fountainhead Capital Partners Limited	 	NovaRay, Inc.
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/
Carol Dodge	 	 	 	By:	 	/s/
Marc C. Whyte
	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	Carol Dodge	 	 	 	 	 	 	 	Name:
	 	Marc C. Whyte
	 

	 	Title:
	 	Director
	 	 	 	 	 	Title:
	 	Chief Executive Officer
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	/s/
Eileen O’Shea	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Name:	 	Eileen O’Shea	 	 	 	 	 	 	 	 	 	 
	 

	 	Title:
	 	Director
	 	 	 	 	 	 	 	 






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AMENDMENT NO. 1 TO CONSULTING AGREEMENT




     This Amendment No. 1 to Consulting Agreement (as defined below) (the “Amendment”) is entered
into on December ___, 2007 by and among NovaRay, Inc., a Delaware corporation (the “Company”) and
Fountainhead Capital Partners Limited (“Consultant”) (each a “Party” and collectively referred to
hereafter as the “Parties”).



RECITALS




     WHEREAS, the Company is desirous of completing a “reverse merger” transaction whereby a public
shell company to be identified (“PubCo”) will acquire by merger the business of the Company (the
“Reverse Merger”), and, concurrently therewith, a financing with aggregate proceeds to the Company
or its successors of not less than $10,000,000 (the “Financing,” and with the Reverse Merger,
collectively the “Proposed Transaction”).



     WHEREAS, NovaRay and Consultant are parties to that certain Consulting Agreement dated October
2, 2007 (the “Agreement”), pursuant to which the Company engaged Consultant as a consultant to
provide advice related to the Proposed Transaction on the terms and for the services specified in
the Agreement.;



     WHEREAS, NovaRay and Consultant desire to amend the Agreement to change the Consulting Fees to
which Consultant is entitled as consideration for the Services in accordance with the terms set
forth in this Amendment.



     NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Consultant hereby agree to amend the Agreement as follows:



AMENDMENT




     1. Definitions. Except as otherwise provided herein, capitalized terms used in this
Amendment shall have the definitions set forth in the Agreement.



     2. Amendment to Section 2(c). Section 2(c) of the Agreement shall be amended to read
in its entirety as follows:




“(c) the Consultant shall have no authority to make offers to sell the Company’s
securities, make any representations or warranties on the Company’s behalf or bind
the Company in any way.”



     3. Amendment to Section 5(a). Section 5(a) of the Agreement shall be amended to read
in its entirety as follows:




“(a) if the Proposed Transaction is consummated, (i) a cash fee in the
amount of $200,000, payable at closing of the Financing; (ii) 438,697 shares
(the “Consultant Shares”) of the Company’s common stock (the “Common
Stock”), 37,453 shares of which will be issued to Consultant’s



 









 







designee, Mr.
Robert Rubin (the “Consultant Designee”), who is an
intended third party beneficiary to this Agreement; and (iii) warrant to
purchase 200,000 shares of Common Stock at a price of $12.75 per share
exercisable in whole or in part over a period of five years from the date of
issuance (the “Consultant Warrants” and with the Consultant Shares, the
“Consultant Securities”). The Company will issue the Consultant Securities
to the Consultant (in the names and in the amounts to be provided to the
Company by Consultant prior to such issuance so long as the Consultant
provides adequate assurances that such recipients are “accredited investors”
as defined pursuant to the Securities Act of 1933, as amended) and the
Consultant Designee pursuant to securities purchase and warrant agreements
in a form reasonably acceptable to the Company and Consultant immediately
prior to the Reverse Merger; provided, however, that such agreements shall
provide that the Company shall have the right to redeem all of the
Consultant Securities at a redemption price equal to $0.001 per share in the
event that the Proposed Transaction is not consummated prior to the
termination of this Agreement. The exercise price of the Consultant Warrants
assumes a conversion price for the Series A Preferred Stock to be issued to
new investors in the Financing following completion of the Merger of $2.67.
The exercise price will be adjusted accordingly if the conversion price is
other than $2.67; and”



     4. Terms of Agreement. Except as expressly modified hereby, all terms, conditions and
provisions of the Agreement shall continue in full force and effect.



     5. Conflicting Terms. In the event of any inconsistency or conflict between the
Agreement and this Amendment, the terms, conditions and provisions of this Amendment shall govern
and control.



     6. Entire Agreement. This Amendment and the Agreement constitute the entire and
exclusive agreement between the parties with respect to the subject matter hereof. All previous
discussions and agreements with respect to this subject matter are superseded by the Agreement and
this Amendment. This Amendment may be executed in one or more counterparts, each of which shall be
an original and all of which taken together shall constitute one and the same instrument.



 









 





     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as an instrument
under seal as of the date first written above.



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fountainhead Capital Partners Limited	 	NovaRay, Inc.
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/
Gisele Le Miere	 	 	 	By:	 	/s/
Marc C. Whyte
	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	Gisele Le Miere	 	 	 	 	 	 	 	Name:
	 	Marc C. Whyte
	 

	 	Title:
	 	Director

	 	 	 	 	 	Title:
	 	Chief Executive Officer
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	/s/
Eileen O’Shea	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Name:	 	Eileen O’Shea	 	 	 	 	 	 	 	 	 	 
	 

	 	Title:
	 	Director

	 	 	 	 	 	 	 	 






[Signature Page to Amendment No. 1 to Consulting Agreement]