exv10w18



 





Exhibit 10.18




NOVARAY, INC.




CONVERSION AGREEMENT




     This Conversion Agreement (as defined below) (the “Agreement”) is entered into on
December 20, 2007 by and among NovaRay, Inc., a Delaware corporation (“NovaRay”) and
Wheatley MedTech Partners, L.P. (“Holder”).



RECITALS




     WHEREAS, certain assets currently owned by NovaRay are subject to a security interest pursuant
to a secured convertible promissory note issued to Holder dated June 24, 2004, in the aggregate
principal amount of $38,089.39, a copy of which is attached hereto as Exhibit A-1 (the
“First Note”), NovaRay borrowed funds from Holder pursuant to the terms and conditions set
forth in that certain secured promissory note dated June 21, 2005, in the aggregate principal
amount of $215,763.10, a copy of which is attached hereto as Exhibit A-2 (the “Second
Note”), and NovaRay borrowed funds from Holder pursuant to the terms and conditions set forth
in that certain convertible promissory note dated March 20, 2007, in the aggregate principal amount
of $50,000.00, a copy of which is attached hereto as Exhibit A-3 (the “Third Note”
and together with the First Note and the Second Note, collectively, the “Notes”);



     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 Qualified
Financing, NovaRay and Holder desire to enter into this Agreement to provide for automatic
conversion of all principal and interest accrued through November 15, 2007 pursuant to the Notes
into Qualified Financing Securities at the initial closing of the Qualified Financing on the terms
and conditions set forth herein.



     NOW, THEREFORE, in consideration of the mutual promises and covenants herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as follows:



 









 





AGREEMENT




     1. Automatic Conversion. Notwithstanding any other conversion rights or obligations
contained in the Notes, in the event that NovaRay and PubCo shall consummate the Proposed
Transaction, Holder agrees that all principal and unpaid but accrued interest through November 15,
2007 under the Notes 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: (a) with respect to
the First Note and the Second Note, the purchase price paid for the Qualified Financing Securities
by the Financing Investors; and (b) with respect to the Third Note, 80% of the purchase price paid
for the Qualified Financing Securities by the Financing Investors. In furtherance of the foregoing,
Holder (x) consents to the Merger in its capacity as a holder of the Notes, 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.



     2. Interest Accrued After November 15th. Within five (5) days following
the first closing of the Qualified Financing, NovaRay shall cause PubCo to make a cash payment to
Holder representing all accrued but unpaid interest since November 15, 2007 through such closing.



     3. Satisfaction of All Obligations; Release of Security Interest. Holder acknowledges
and agrees that upon the automatic conversion described in Section 1 above and receipt of the
payment described in 2 above (a) all of the obligations of NovaRay pursuant to the Notes shall be
deemed paid and satisfied in full, and (b) any security interest Holder may have in any assets
owned by NovaRay pursuant to a security agreement or otherwise shall be terminated and released.



     4. Further Assurances. Holder shall, upon the request of NovaRay, execute,
acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, any
assignments, consents, transfers and conveyances or waivers as may be required to effect the
provisions of the Agreement. Holder undertakes and covenants to provide all assistance of whatever
nature to effect the provisions of the Agreement, including executing, acknowledging, delivering or
causing to be executed, acknowledged and delivered, any assignments, consents, transfers and
conveyances or waivers.



     5. Termination. In the event that the Proposed Transaction is not consummated prior
to January 15, 2008 for any reason, this Agreement shall automatically terminate and the Notes
shall remain in full force and effect in accordance with their terms (including any terms related
to conversion, if any).



     6. Notices. Any notice, demand, or request required or permitted to be given under
the Agreement must be in writing and will be deemed given when delivered personally, or three days
after being deposited in the United States mail as certified or registered mail, return receipt
requested, with postage prepaid, or the day following facsimile transmission, with confirmed
transmission, in either case addressed to the address shown below each party’s signature, or at
such other address as any party may designate by 10 days’ advance written notice to the other party.



 









 





     7. Amendment: Waiver. The Agreement may be amended only by the written consent of the
each party. No waiver of any provision of the Agreement will be effective unless in writing and
signed by the waiving party.



     8. Governing Law. The Agreement will be governed by, and will be construed and
enforced in accordance with, the laws of the state of California.



     9. Assignment. The rights and benefits of the Agreement will inure to the benefit of
and be enforceable by the Company and its respective successors and assigns. The rights and
obligations of either party under the Agreement may not be assigned by operation of law or
otherwise without the prior written consent of the nonassigning party.



     10. Attorneys’ Fees. If suit or action is filed by any party to enforce the Agreement
or otherwise with respect to the subject matter of the Agreement, the prevailing party will be
entitled to recover reasonable attorneys’ fees and expenses incurred in preparation for and
prosecution of such suit or action at trial, on appeal, and in connection with any petition for
review.



     11. Entire Agreement. This 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.



     12. Counterparts. This Agreement 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 Agreement as of the date first above
written.



	 	 	 	 	 
	 	“HOLDER”



WHEATLEY MEDTECH PARTNERS, L.P.

 	 
	 	By:  	/s/
Barry Rubenstein	 
	 	 	Name:  	Barry Rubenstein	 
	 	 	Title:  	CEO	 
	 


Address for Notices:



__________________________

__________________________

Attn: ____________

Fax: _____________




	 	 	 	 	 
	“NOVARAY”



NOVARAY, INC.

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



Address for Notices:




NovaRay, Inc.

Attention: Chief Executive Officer

1850 Embarcadero Road,

Palo Alto, California 94303

Facsimile: (650) 565-8601




[Signature Page to Conversion Agreement]



 









 







EXHIBIT A-1




FIRST NOTE




EXHIBIT A-1





 









 








EXHIBIT A-2




SECOND NOTE




EXHIBIT A-2



 









 







EXHIBIT A-3




THIRD NOTE




EXHIBIT A-3