exv10w16



 





Exhibit 10.16




NOVARAY, INC.




AMENDMENT NO. 2 TO AGREEMENT




     This Amendment No. 2 to Agreement (as defined below) (the “Amendment”) is entered into
on December 20, 2007, effective as of November 30, 2007 by and among NovaRay, Inc., a Delaware
corporation (“NovaRay”) and AIG Horizon Partners Fund, L.P., AIG Horizon Side-by-Side Fund,
L.P., AIG Private Equity Portfolio, L.P., AIU Insurance Company, and Commerce and Industry
Insurance Company (each an “AIG Party” and collectively as the “AIG Parties”).



RECITALS




     WHEREAS, NovaRay and the AIG Parties are parties to that certain Agreement dated October 12,
2006, as amended by that certain Amendment No. 1 to Agreement dated August 28, 2007, (the
“Agreement”), pursuant to which the AIG Parties agreed to sell an aggregate of 413,000
shares of NovaRay’s common stock (the “AIG Shares”) to NovaRay and NovaRay agreed to
provide the AIG Parties with certain conversion rights with respect to the AIG Notes (as defined in
the Agreement) in certain subsequent financing transactions on the terms and conditions set forth
in the Agreement;



     WHEREAS, the Agreement provides that the AIG Parties may repurchase the AIG Shares from
NovaRay in the event that the AIG Notes have not been converted into equity securities of NovaRay
or otherwise fully repaid by December 1, 2007 (the “Conversion and Repurchase Date”) in
accordance with terms of the Agreement;



     WHEREAS, NovaRay is currently in negotiations with Vision Capital and its affiliates (the
“Lead Investor”) to complete a “reverse merger” transaction whereby a wholly-owned
subsidiary (“Merger Sub”) of public shell company to be identified (“PubCo”) will
merge with and into NovaRay with NovaRay remaining as the surviving entity after the merger whereby
the stockholders of NovaRay will receive common stock of PubCo in exchange for their capital stock
of NovaRay (the “Merger”);



     WHEREAS, concurrently with or immediately following the consummation of the Merger, the Lead
Investor and certain other investors (collectively, the “Financing Investors”) and PubCo
will complete a private placement financing whereby PubCo will issue and sell its securities (the
“Qualified Financing Securities”) to the Financing Investors for aggregate gross proceeds
to PubCo of not less than $10,000,000.00 (not including conversion of any NovaRay indebtedness)
(the “Qualified Financing,” and with the Merger, collectively the “Proposed
Transaction”); and



     WHEREAS, as a material inducement to the Financing Investors to consummate the Proposed
Transaction, NovaRay and the AIG Parties desire to amend the Agreement to (i) change the Conversion
and Repurchase Date from December 1, 2007 to January 15, 2008, and (ii) to provide for the
automatic conversion of all principal and accrued interest pursuant to the AIG Notes into the
Qualified Financing Securities upon consummation of the Proposed
Transaction on the terms and conditions set forth herein.



 









 





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



AMENDMENT




     1. Definitions. Except for terms defined herein (including those terms defined in the
Recitals to this Amendment), capitalized terms used in this Amendment shall have the definitions
set forth in the Agreement.



     2. Amendment. All references to “December 1, 2007” contained in Sections 1(b), 1(e),
2(b), and 5(b) of the Agreement are hereby changed to “January 15, 2008.”



     3. Amendment. The reference to “February 29, 2008” contained in Section 2(b) of the
Agreement is hereby changed to “April 15, 2008.”



     4. Addition of Section 3(e). The Agreement shall be amended to include a new Section
3(e), which shall read as follows:




“(e) Automatic Conversion upon a Qualified Financing.
Notwithstanding any other conversion rights or obligations contained in this
Section 3, in the event that NovaRay and PubCo shall consummate the Proposed
Transaction, each AIG Party agrees that any principal and unpaid but accrued
interest under the AIG Note held by such AIG Party shall, concurrently with
the first closing of such Qualified Financing, automatically convert into
the Qualified Financing Securities issued and sold by PubCo to the Financing
Investors in such Qualified Financing at a conversion price equal to the
purchase price paid for the Qualified Financing Securities by the Financing
Investors, provided that (i) immediately following the initial closing of
the Qualified Financing, the AIG Parties or their affiliates hold more than
5% of the outstanding shares of common stock of PubCo on a Fully-Diluted
Basis; and (ii) the principal and unpaid but accrued interest under all
convertible promissory notes of NovaRay outstanding as of November 30, 2007
(except those scheduled on Exhibit E attached hereto) automatically
convert into the Qualified Financing Securities at the initial closing of
the Qualified Financing. In furtherance of the foregoing, each AIG Party (x)
consents to the Merger in its capacity as a holder of an AIG Note, and (y)
agrees to execute and deliver to PubCo any documents reasonably requested by
PubCo to be executed by the Financing Investors in the Qualified Financing
(including, but not limited to, a purchase agreement and a registration
rights agreement), thereby agreeing to be bound by all obligations and
receive all rights thereunder.”



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



 









 





     6. 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.



     7. 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 have executed this Amendment as of the date first above
written.



	 	 	 	 	 
	 	AIG HORIZON PARTNERS FUND, L.P.,

as a Lender



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

	 
	 	Address for Notices:



277 Park Avenue, 43rd Floor

New York, New York 10172

Attn: F.T. Chong

Fax: (646) 857-8842

 	 
	 	AIG HORIZON SIDE-BY-SIDE FUND, L.P., as a Lender



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

	 
	 	Address for Notices:



277 Park Avenue, 43rd Floor

New York, New York 10172

Attn: F.T. Chong

Fax: (646) 857-8842
 	 
	 	 	 



[Signature Page to Amendment No. 2 to Agreement]




 









 








	 	 	 	 	 
	 	AIG PRIVATE EQUITY PORTFOLIO, L.P.,

as a Lender



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

	 
	 	Address for Notices:



277 Park Avenue, 43rd Floor

New York, New York 10172

Attn: F.T. Chong

Fax: (646) 857-8842
 	 
	 



[Signature Page to Amendment No. 2 to Agreement]




 









 








	 	 	 	 	 
	 	AIU INSURANCE COMPANY,

as a Lender



By: AIG Global Investment Corp.,

its investment advisor

 	 
	 	By:  	/s/ F.T. Chong	 
	 	 	Name: F.T. Chong


	 	 	Title: Managing
Director

	 
	 	Address for Notices:



277 Park Avenue, 43rd Floor

New York, New York 10172

Attn: F.T. Chong

Fax: (646) 857-8842
 	 
	 
	 	COMMERCE AND INDUSTRY INSURANCE COMPANY,

as a Lender



By: AIG Global Investment Corp.,

its investment advisor

 	 
	 	By:  	/s/ F.T. Chong	 
	 	 	Name: F.T.
Chong

	 	 	Title: Managing
Director

	 
	 	 Address for Notices:



277 Park Avenue, 43rd Floor

New York, New York 10172

Attn: F.T. Chong

Fax: (646) 857-8842
 	 
	 



[Signature Page to Amendment No. 2 to Agreement]




 









 








	 	 	 	 	 
	NOVARAY, INC.

 	 	 
	By:  	/s/ Marc C. Whyte	 	 
	 	Marc C. Whyte, Chief Executive Officer 	 	 
	 	 	 	 
	Address for Notices:



Attention: Chief Executive Officer

1850 Embarcadero Road,

Palo Alto, California 94303

Facsimile: (650) 565-8601

 	 	 



[Signature Page to Amendment No. 2 to Agreement]




 









 





EXHIBIT
E




Schedule of NovaRay Promissory Notes excluded from conversion upon Qualified Financing




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Accrued Interest
	Name of Lender	 	Loan Date	 	Principal	 	as of 11/15/2007
	RiverVest Venture Fund I, L.P.
	 	 	6/24/04	 	 	$	95,223.55	 	 	$	38,788.60	 
	JP Morgan Partners (BHCA), LP
	 	 	6/23/04	 	 	$	325,072.22	 	 	$	132,522.59	 
	Barry Holloway
	 	 	6/23/04	 	 	$	88.65	 	 	$	36.14	 






EXHIBIT E