exv10w7



 





Exhibit 10.7




CONSULTING AGREEMENT




     This Consulting Agreement (this “Agreement”) is made as of December 19, 2007 by and between
NovaRay, Inc. (the “Company”) and Heartstream Corporate Finance B.V. (“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 January 22, 2007 (the “Engagement Agreement”), pursuant to which Consultant agreed to provide
certain services to the Company.



     WHEREAS, the Company and Consultant wish to terminate the Engagement 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 $10,000,000 (the “Financing,” and with the Reverse Merger,
collectively the “Proposed Transaction”).



     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 assist the Company in identifying potential European investors which might
have an interest in participating in the Financing.




     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



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allocation of securities among investors in the Financing; and whether or not to consummate
the Proposed Transaction; and




          (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. Termination of Engagement Agreement. The Engagement Agreement is terminated and
replaced by this Agreement. No sections of the Engagement Agreement shall survive the termination
of the Engagement Agreement and no sections of the Engagement 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) January
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) The Company shall cause PubCo to pay to Consultant a cash placement fee equal to 7% of the
aggregate purchase price paid by the purchasers of securities that Consultant first introduced to
the Company (“Consultant Investor”) in the Offering. The fee will be paid within 10 days following
the closing of the Proposed Transaction from the gross proceeds of the securities sold to a
Consultant Investor; and




          (b) As additional compensation for the Services, if Consultant Investors purchase securities
in this Offering, the Company shall cause the PubCo to issue to Consultant or its designees at the
closing of the Proposed Transaction, warrants to purchase that number of shares of common stock of
PubCo equal to 7% of the aggregate dollar amount actually invested by Consultant Investors divided
by the exercise price for the warrants to purchase Pubco’s common stock issued to all of the
investors in the Proposed Transaction (the “Warrants”). The Warrants shall have the same exercise
price as the warrants to purchase Pubco’s common stock issued to all the investors in the Offering.




     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 Warrants. The Company and its successors do



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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 grossly negligent, 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.



     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



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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:	 	 
	 
	 	 	 	 	 	 
	 

	 	Heartstream Corporate Finance B.V.

Gooise Poort Goodimeer 3-25

1411 DC Naarden

The Netherlands	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Attention: George J.M. Hersbach	 	 	 	 





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.



          (b) 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.




          (c) 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.




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          (d) 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.




          (e) 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.




          (f) 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.




          (g) 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.




          (h) 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.




          (i) 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.




          (j) 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.




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          (k) 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.





	 	 	 	 	 	 	 	 	 	 	 	 	 
	Heartstream Corporate Finance B.V.
 	 	 NovaRay, Inc.

 	 	 
	By:

	 	/s/
George J.M. Hersbach	 	By:	 	/s/ Marc C. Whyte 	 	 
	 

	 	Name:
	 	George J.M. Hersbach
	 	 	 	Name:
	 	Marc C. Whyte	 	 
	 

	 	Title:
	 	President & Chief Executive Officer
	 	 	 	Title:
	 	Chief Executive Officer
	 	 







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