Document:

Note and Warrant Purchase Agreement

Table of Contents

 Exhibit 10.1 
 NOTE AND WARRANT PURCHASE AGREEMENT 
 Dated as of July 2, 2009 
 among 
 NOVARAY MEDICAL, INC. 

 and 
 THE PURCHASERS
LISTED ON EXHIBIT A 

Table of Contents

 TABLE OF CONTENTS 
  

					
	 	    	 	  	PAGE
	 ARTICLE I Purchase and Sale of Notes and Warrants 
	  	1
			
	 Section 1.1
	    	Purchase and Sale of Notes	  	1
	 Section 1.2
	    	Warrants	  	1
	 Section 1.3
	    	Purchase Price and Closings	  	2
		
	ARTICLE II Representations and Warranties 	  	3
			
	 Section 2.1
	    	Representations and Warranties of the Company	  	3
	 Section 2.2
	    	Representations, Warranties and Covenants of the Purchasers	  	8
		
	ARTICLE III Covenants 	  	11
			
	 Section 3.1
	    	Securities Compliance	  	11
	 Section 3.2
	    	Registration and Listing	  	11
	 Section 3.3
	    	Inspection Rights	  	11
	 Section 3.4
	    	Compliance with Laws	  	12
	 Section 3.5
	    	Keeping of Records and Books of Account	  	12
	 Section 3.6
	    	Reporting Requirements	  	12
	 Section 3.7
	    	Amendments	  	12
	 Section 3.8
	    	Other Agreements	  	13
	 Section 3.9
	    	Distributions	  	13
	 Section 3.10
	    	Use of Proceeds	  	13
	 Section 3.11
	    	Reservation of Shares	  	13
	 Section 3.12
	    	Transfer Agent Instructions	  	13
	 Section 3.13
	    	Disposition of Assets	  	14
	 Section 3.14
	    	Reporting Status	  	14
	 Section 3.15
	    	Disclosure of Transaction	  	14
	 Section 3.16
	    	Pledge of Securities	  	14
	 Section 3.17
	    	Sarbanes-Oxley Act	  	15
	 Section 3.18
	    	Mergers and Acquisitions	  	15
	 Section 3.19
	    	Related Party Transactions	  	15
	 Section 3.20
	    	Additional Debt	  	15
	 Section 3.21
	    	Subsequent Events	  	16
		
	ARTICLE IV Conditions 	  	16
			
	 Section 4.1
	    	Conditions Precedent to the Obligation of the Company to Sell the Shares	  	16
	 Section 4.2
	    	Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares	  	17
		
	ARTICLE V Stock Certificate Legend 	  	19

  

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	 Section 5.1
	    	Legend 	  	19
		
	ARTICLE VI Indemnification 	  	20
			
	 Section 6.1
	    	Indemnification of Purchasers	  	20
	 Section 6.2
	    	Indemnification Procedure	  	20
	 Section 6.3
	    	Exclusive Remedy	  	21
		
	ARTICLE VII Miscellaneous 	  	21
			
	 Section 7.1
	    	Fees and Expenses	  	21
	 Section 7.2
	    	Specific Enforcement, Consent to Jurisdiction	  	21
	 Section 7.3
	    	Entire Agreement; Amendment	  	22
	 Section 7.4
	    	Notices	  	22
	 Section 7.5
	    	Rescission and Withdrawal Right	  	23
	 Section 7.6
	    	Waivers	  	23
	 Section 7.7
	    	Headings	  	23
	 Section 7.8
	    	Successors and Assigns	  	23
	 Section 7.9
	    	No Third Party Beneficiaries	  	23
	 Section 7.10
	    	Governing Law	  	23
	 Section 7.11
	    	Survival	  	24
	 Section 7.12
	    	Counterparts	  	24
	 Section 7.13
	    	Publicity	  	24
	 Section 7.14
	    	Severability	  	24
	 Section 7.15
	    	Further Assurances	  	24

  

			
	EXHIBITS
		
	A.	  	Purchasers and Amounts
	B.	  	Form of Note
	C	  	Form of Warrant
	D.	  	Form of Security Agreement
	E.	  	Certificate of Designation
	F.	  	Form of Irrevocable Transfer Agent Instructions
	G.	  	Form of Warrant Amendments
	H.	  	Form of Amendments to Employment Agreements
	I.	  	Form of Exchange Agreements

  

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 NOTE AND WARRANT PURCHASE AGREEMENT 
 This NOTE AND WARRANT PURCHASE AGREEMENT (the “Agreement”) is dated as of July 2, 2009 by and among NovaRay Medical, Inc., a
Delaware corporation (the “Company”), and each of the Purchasers whose names are set forth on Exhibit A hereto (individually, a “Purchaser” and collectively, the
“Purchasers”). 
 The parties hereto agree as follows: 
 ARTICLE I 
 Purchase and Sale of Notes and
Warrants 
 Section 1.1 Purchase and Sale of Notes. 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, senior secured 12% convertible bridge notes in the aggregate principal amount of up to four million two hundred fifty thousand dollars
($4,250,000) (the “Notes”). The Notes provide for mandatory conversion upon the occurrence of a Qualified Financing (as defined in the Notes). The Notes shall be substantially in the form attached hereto as Exhibit
B. 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 Warrants, in substantially the form attached hereto as Exhibit C (the “Warrants”), to purchase up to the greater of (a) the number of shares of the
Company’s common stock, par value $0.0001 per share (the “Common Stock”) equal to the initial principal amount of the Note of such Purchaser times a fraction of 6/$11, rounded to the nearest whole share or (b) the
number of shares of Common Stock equal to the initial principal amount of the Note held by such Purchaser divided by the price per share paid for the Qualified Financing Stock (as defined in the Note) in the Qualified Financing (as defined in the
Note). Any shares of Common Stock issuable upon exercise of the Warrants (and such shares when issued) are herein referred to as the “Warrant Shares.” The Warrants shall expire July 2, 2014 and shall have an initial
exercise price equal to two dollars and sixty-seven cents ($2.67) per share. The Company has authorized and has reserved at least 1,650,000 shares of Common Stock and upon determining the number of shares issuable upon exercise of the Warrants,
covenants to continue to reserve, free of preemptive rights and other similar contractual rights of stockholders, 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 Warrants then outstanding. The Notes, the Warrants, and the Warrant Shares are sometimes collectively referred to as the “Securities.” 
 Section 1.3 Purchase Price and Closings. Subject to the 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 

  

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Agreement, the Purchasers, severally but not jointly, agree to purchase the Notes and the Warrants for an aggregate purchase price of up to four million two
hundred fifty thousand dollars ($4,250,000) (the “Purchase Price”). The initial closing under this Agreement (the “Initial Closing”) shall take place on or about July 2, 2009 (the
“Initial Closing Date”). Following the Initial Closing and until the earlier of (i) October 31, 2009 or (ii) such time that the Company shall have issued Notes totaling $4,250,000 in principal, the Company
shall have the right, subject to the terms and conditions hereof, to issue Notes and Warrants to existing Purchasers and additional persons who the Company shall be authorized to add to and include in Exhibit A hereto, in such amounts
as the Company shall determine. Any additional person added to Exhibit A hereto, shall be deemed a “Purchaser” for all purposes of this Agreement. The subsequent closings under this Agreement shall take place
upon the mutual agreement of the Company and the additional Purchasers participating in such Subsequent Closings (the “Subsequent Closings,” and the date of each such Subsequent Closing, a “Subsequent Closing
Date”). Each of the Initial Closing and the Subsequent Closing are sometimes referred to in this Agreement as a “Closing” and the date of any such closing, the “Closing Date”. The Initial
Closing under this Agreement shall take place at the offices of Vision Opportunity Master Fund, LLP, 20 West 55th Street, 5th Floor, New York, NY 10019 at 10:00 a.m., New York time; provided, that all of the conditions set forth in
Article IV hereof and applicable to the Initial Closing shall have been fulfilled or waived in accordance herewith. In the event that the Company does not receive at least two million seven hundred fifty thousand dollars ($2,750,000)
in gross proceeds from the Initial Closing on or prior to July 6, 2009, the Company may terminate this Agreement, the Notes, the Warrants, the Warrant Amendments and the Security Agreement upon written notice to the Purchasers. Subject to the
terms and conditions of this Agreement, at each Closing the Company shall deliver or cause to be delivered to each Purchaser (x) its Notes for the principal amount set forth opposite the name of such Purchaser on Exhibit A hereto,
(y) its Warrants to purchase such number of shares of Common Stock determined in accordance with the formula set forth herein and (z) any other documents required to be delivered pursuant to Article IV hereof. At each
Closing, the applicable Purchasers shall deliver the applicable Purchase Price by wire transfer to the Company. In addition, the parties acknowledge that up to thirty-five thousand ($35,000) dollars of the Purchase Price funded on the Initial
Closing Date shall be deducted from the total amount otherwise payable to the Company, and paid over to counsel for the Purchasers in payment of reasonable legal fees and out of pocket expenses of the Purchasers’ counsel. The Company hereby
grants to each Purchaser in the Initial Closing the right of first offer to purchase Notes and Warrants which the Company may propose to sell and issue from September 1, 2009 until October 31, 2009. In the event the Company proposes to
undertake an issuance of Notes and Warrants during the time period between September 1, 2009 and October 31, 2009, it shall give each Purchaser in the Initial Closing written notice of its intention, describing the amount of such Notes and
Warrants and the terms upon which the Company proposes to issue the same. Each such Purchaser shall have ten (10) days from the date of receipt of any such notice to agree to purchase such Notes and Warrants upon the terms specified in such
notice by giving written notice to the Company and stating therein the quantity of Notes and Warrants to be purchased. In the event that all of such Notes and Warrants are not elected to be purchased by the Purchasers in the Initial Closing within
such ten (10) day period, the Company shall have until October 31, 2009 to sell such Notes and Warrants not elected to be purchased upon the terms no more favorable to the purchasers than specified in the Company’s notice. 

 

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 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 and as of each Closing Date (except as set forth in the schedule of exceptions delivered by the Company to a
Purchaser at each 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 Notes,
the Warrants, the Security Agreement in the form attached hereto as Exhibit D (the “Security Agreement”), the Irrevocable Transfer Agent Instructions (as defined in Section 3.12), the
Certificate of Designation of the Relative Rights and Preferences of the Series A-1 Convertible Preferred Stock (the “Certificate of Designation”), the Amendments to the Series A Warrants, and the Second Amendments to the
Series J-A Warrants (the “Warrant Amendments”) (collectively, the “Transaction Documents”) and to issue and sell the Notes 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, 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 currently
issued and outstanding as of the date hereof are set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Common Stock 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 

  

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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. Except as set forth on Schedule 2.1(c) hereto, 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 Securities. The Notes and the Warrants to be issued at the Closing have been duly authorized by all necessary corporate action and
when paid for and issued in accordance with the terms hereof, the Notes and Warrants shall be validly issued and outstanding, free and clear of all liens, encumbrances and rights of refusal of any kind. When the Warrant Shares are paid for and
issued in accordance with the terms of the Warrants, such shares will be duly authorized by all necessary corporate action and validly issued and outstanding, fully paid and nonassessable, free and clear of all liens, encumbrances and rights of
refusal of any kind and the holders shall be entitled to all rights accorded to a holder of Common Stock. 
 (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, other than pursuant to the Transaction Documents, 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 

  

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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 Notes, the Warrants and the Warrant Shares in accordance with the terms hereof or thereof (other than (w) the Certificate of Designation and the Certificate of Designation
of the Relative Rights and Preferences of the Series A Convertible Preferred Stock, as amended, (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); 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 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. 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). 
  

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 (g) No Material Adverse Change. Other than as disclosed in the Company’s Commission
Documents, since December 31, 2008, neither the Company nor any of its subsidiaries has experienced or suffered any Material Adverse Effect. 
 (h) Title to Assets. Except as set forth on Schedule 2.1(h), each of the Company and the subsidiaries has good and marketable title to all of its 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. The Company does not own any real property. 
 (i) 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. 
 (j) Compliance with Law. The business of the Company and its subsidiaries 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. 

(k) 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. 
 (l) Certain Fees. Except as set forth on Schedule 2.1(l)
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. 
 (m) 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 

  

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Adverse Effect (collectively, the “Intellectual Property Rights”). Schedule 2.1(m) 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 unenforceable. The Company has taken commercially reasonable security measures to protect the
secrecy and confidentiality of its Intellectual Property Rights. 
 (n) Transactions with Affiliates. Except as set forth on
Schedule 2.1(n), 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. 
 (o) 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 Notes 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 Notes, 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 Notes 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 Notes
and the Warrants. 
 (p) 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 the filing of the Certificate of Designation with the Secretary of 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 Notes and the Warrants, or for the performance by the Company of its obligations under the Transaction Documents. 
  

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 (q) 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 one of the Purchasers and such counsel does not represent all of the Purchasers but only such Purchaser and the other Purchasers have retained their own individual counsel with respect to the transactions contemplated hereby.

 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), as of the date hereof, and as of each Closing Date in which such Purchaser is participating in
a Closing: 
 (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 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
Notes and Warrants being sold to it hereunder. The execution, delivery and performance of this 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. This 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. 
  

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 (c) No Conflicts. The execution, delivery and performance of this 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 to
purchase the Notes 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 Notes 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 Notes 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 Notes 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 Notes or the Warrants for any minimum or other
specific term and reserves the right to dispose of the Notes 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 Notes or Warrants, nor will such Purchaser engage in any short sale that results in a disposition of any of the Notes 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 Notes 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. 
  

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 (f) Opportunities for Additional Information. 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 Notes 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 Securities must be held indefinitely unless such Securities 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 Securities without either registration under the Securities Act
or the existence of another exemption from such registration requirement. 
 (i) General. Such Purchaser understands that the
Securities 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 Securities. 
 (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 Securities 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 Securities. 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
Notes 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 Notes and
Warrants. 
 (k) Risk of Loss; No Public Market. Each Purchaser understands that its investment in the Notes 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 

  

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public market for the securities of the Company; that the purchase price for the Securities was established by negotiations between the Company and the
Purchasers; 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 Notes, the Warrants, and the 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 Notes, the Warrants and the Warrant Shares to the Purchasers or subsequent holders. 
 Section 3.2 Registration and Listing. Unless the Company obtains written consent of Purchasers holding
Securities representing more than fifty percent (50%) of all Securities and so long as a Purchaser beneficially owns any of the Securities, 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. Subject to the terms of the Transaction
Documents, the Company further covenants that it will take such further action as the Purchasers may reasonably request, all to the extent required from time to time, to enable the Purchasers to sell the Common Stock of the Company issuable upon
exercise or conversion of the Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144, unless the Company obtains written consent of Purchasers holding Securities representing more than
fifty percent (50%) of all Securities and so long as a Purchaser beneficially owns any of the Securities. 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 Notes or shall
beneficially own any Notes, or shall own Common Stock 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, 

  

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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 Notes and
Warrants or shall beneficially own any Securities: 
 (a) Quarterly Reports filed with the Commission on Form 10-Q 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-K 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 
 (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 materially and adversely affect the rights of the holders of the Notes and/or Warrants. No
consideration shall be offered or paid to any holders of the Notes or the Warrants to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to Purchasers
holding Notes representing more than fifty percent (50%) of the aggregate outstanding principal balances of all Notes or Purchasers holding more than fifty percent (50%) 

  

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of all shares issuable upon exercise of all Warrants, as the case may be. The Company has not, directly or indirectly, made any material agreements with any
Purchasers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. All agreements with any Purchasers relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in the Transaction Documents shall be disclosed to Purchasers in the Initial Closing. Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement, no
Purchaser has made any commitment or promise or has any other obligation to provide any financing to the Company or otherwise. 
 
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 Notes 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. An estimated allocation of
the net proceeds from the sale of the Securities hereunder is set forth on Schedule 3.10 hereto. The net proceeds from the sale of the Securities hereunder shall not be used by the Company to redeem any Common Stock or securities
convertible, exercisable or exchangeable into Common Stock or to settle any outstanding litigation except for fractional shares as set forth in the Exchange Agreements (as defined below). 
 Section 3.11 Reservation of Shares. Upon determining the number of shares issuable upon exercise of the
Warrants and continuing for so long as any of the 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 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 Warrant Shares in such amounts as specified from time to time by each Purchaser to the Company upon exercise of the Warrants in the form of Exhibit F attached hereto (the
“Irrevocable Transfer Agent Instructions”). Prior to registration of 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 Agent Instructions referred to in this Section 3.12 will be given by the Company to its transfer agent and that the 

  

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Warrant Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this 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 Warrant Shares may be made without registration under the Securities Act or the
Purchaser provides the Company with reasonable assurances that such Warrant 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 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 principal amount remains outstanding on any Note, 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 aggregate outstanding principal
balance of all Notes. 
 Section 3.14 Reporting Status. Unless the Company obtains written
consent of Purchasers holding Securities representing more than fifty percent (50%) of all Securities and so long as a Purchaser beneficially owns any of the Securities, 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 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 Security Agreement, the form of Note, the form of Warrant, the Certificate of
Designation, the Warrant Amendments) as soon as practicable following the Initial Closing but in no event more than four (4) Trading Days following the Initial Closing, which 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. 
 Section 3.16 Pledge of Securities. The Company acknowledges and agrees that the Securities 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 

  

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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 3.17 Sarbanes-Oxley Act. The Company shall use its
best efforts to be in compliance with the applicable provisions of the Sarbanes-Oxley Act. 
 Section 3.18 Mergers and Acquisitions. Unless the Company obtains written consent of Purchasers holding Notes representing more than fifty percent (50%) of the aggregate outstanding principal
balances of all Notes or until such time that no outstanding principal balance remains under the Notes, the Company shall not by operation of law or otherwise, merge with, consolidate with, acquire all or substantially all of the assets or capital
stock of, or otherwise combine with, any partnership, joint venture, trust, association, corporation, limited liability company or other entity. 
 Section 3.19 Related Party Transactions. Unless the Company obtains written consent of Purchasers holding Notes representing more than fifty percent (50%) of the aggregate outstanding
principal balances of all Notes or until such time that no outstanding principal balance remains under the Notes, the Company shall not enter into, or agree to enter into, any agreement with any member of the Board of Directors of the Company or
Triple Ring Technologies, Inc. (“Triple Ring”) except (i) such agreements identified in the Company’s Form 10-Q filed with the Commission on May 13, 2009 as in effect as of the Initial Closing Date,
(ii) agreements related to or in connection with services rendered and expenses incurred under the Professional Services Agreement by and between Triple Ring and the Company (the “PSA”) as in effect as of the Initial
Closing Date; (iii) agreements for other services rendered by Triple Ring not to exceed twenty-five thousand dollars ($25,000) in any calendar month for such other services unless the Company obtains the approval of the Audit Committee of its
Board of Directors for such excess amount; and (iv) the Exchange Agreements. 
 Section 3.20
Additional Debt Financing. Unless the Company obtains written consent of Purchasers holding Notes representing more than fifty percent (50%) of the aggregate outstanding principal balances of all Notes or until such time that no
outstanding principal balance remains under the Notes, the Company shall not enter into any written agreements to incur debt financing after the Initial Closing Date except the (i) Obligations (as defined below), (ii) debt financing which
repays all outstanding principal under the Notes, (iii) compensation, reimbursement or withholding amounts for employees and service providers, (iii) amounts incurred with Triple Ring under the PSA and for other services rendered not to
exceed twenty-five thousand dollars ($25,000) in any calendar month for such other services unless the Company obtains the approval of the Audit Committee of its Board of Directors for such excess amount, (iv) amounts arising out of the
Company’s sublease agreement and expenses associated with the Company’s facilities and (v) any other amounts in an aggregate principal amount not to exceed $250,000. “Obligations” shall mean all loans,
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payment of monetary amounts owing by Company to the Purchasers arising under this Agreement or the Notes including without limitation all principal,
interest, fees, charges, claims, expenses, attorneys’ fees and any other sum chargeable to the Company under this Agreement or the Notes. 
 Section 3.21 Subsequent Events. Until the earlier of (i) such time that no outstanding principal balance remains under the Notes or (ii) two (2) persons selected by Vision
Opportunity Master Fund, Ltd. are appointed to the Company’s Board of Directors as provided below, the Company shall permit a representative of Vision Opportunity Master Fund, Ltd. to attend all meetings of the Company’s Board of Directors
in a nonvoting observer capacity; provided, however, that such representative shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information provided; and, provided further, that the Company reserves the
right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its
counsel. Within ten (10) days following receipt of a written request from Vision Opportunity Master Fund, Ltd., the Company shall ensure that two (2) persons selected by Vision Opportunity Master Fund, Ltd. shall be appointed to replace
two seats on the Board of Directors of the Company subject to satisfactory background check by the Company’s independent auditors and approval of the Board of Directors of the Company which approval shall not be unreasonably withheld

 Section 3.22 Exchange Agreement. The Company shall enter into Exchange Agreements with the holders of its Series A Preferred Stock
substantially in the form attached hereto as Exhibit I (the “Exchange Agreements”) and shall issue its Series A-1 Preferred Stock in exchange for its Series A Preferred Stock pursuant to the Exchange
Agreements. 
 ARTICLE IV 
 Conditions 
 Section 4.1 Conditions Precedent to the
Obligation of the Company to Sell the Securities. The obligation hereunder of the Company to issue and sell the Notes and the Warrants to each Purchaser (taken individually) is subject to the satisfaction or waiver, at or before each 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. 
  

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 (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 Notes 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.

 Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase the
Securities. The obligation hereunder of each Purchaser to acquire and pay for the Notes and the Warrants is subject to the satisfaction or waiver, at or before each 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. 
 (a) Accuracy of the
Company’s Representations and Warranties. Each of the representations and warranties of the Company in this 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).

 (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. The Certificate of Designation in the form of Exhibit E attached hereto
shall have been filed with the Secretary of State of Delaware. 
 (f) Notes and Warrants. The Company shall have executed and
delivered to the Purchasers the certificates (in such denominations as such Purchaser shall request) for the Notes and Warrants being acquired by such Purchaser at the Closing. 
  

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 (g) 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”). 
 (h) 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 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 Warrants then outstanding. 
 (i) 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. 
 (j) Good Standing Certificates. Such Purchaser shall have received good standing certificates showing the Company and any subsidiary are validly
existing and in good standing under the laws of the state of its incorporation. 
 (k) Release of Lien.
Sadis & Goldberg LLP shall have received a UCC termination statement from Triple Ring releasing the current lien on all Company assets in favor of Triple Ring. Such termination statement shall be held in trust by Sadis & Goldberg
LLP until written confirmation of transfer by Vision Opportunity Master Fund, Ltd. to Triple Ring of One Million Four Hundred Sixty-Seven Thousand Eight Hundred Two and  02/100 Dollars ($1,467,802.02) against the outstanding principal and interest balance under the Credit and Security Agreement between the Company and Triple Ring dated as of March 12, 2009 (the
“Credit and Security Agreement”). 
 (l) Warrant Amendments. The Company shall have delivered to the
Purchasers an executed copy of the Warrant Amendments, in substantially the form of Exhibit G hereto. 
 (m) Employment
Agreements. The Company and Marc Whyte, Edward Solomon and William Frederick shall have entered into amendments to their employment agreements substantially in the form attached hereto as Exhibit H. 
 (n) 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. 
 (o) Series A-1 Preferred Stock. The Company shall have
delivered to Sadis & Goldberg LLP, stock certificates representing shares of the Company’s Series A-1 Preferred Stock to be exchanged pursuant to the Exchange Agreements for shares of the Company’s Series A Preferred Stock held by
Vision Opportunity Master Fund, Ltd and Vision Capital Advantage Fund, L.P. 
  

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 ARTICLE V 
 Stock Certificate Legend 
 Section 5.1
Legend. Each certificate representing the Notes and the Warrants, and, if appropriate, securities issued upon conversion or exercise 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 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 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 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 Warrant Shares is required to
be issued to a Purchaser without a legend, in lieu of delivering physical certificates representing the Warrant Shares (provided that a registration statement under the Securities Act providing for the resale of the Warrant Shares is then in
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transmit the 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, attorneys, 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 any such persons 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 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 

  

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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 Notes and the Warrants. 
 ARTICLE VII 
 Miscellaneous 
 
Section 7.1 Fees and Expenses. Except as otherwise set forth in this Agreement and the other Transaction Documents, each party shall pay the fees and expenses of its advisors, counsel, accountants and other experts, if any, and all
other expenses, incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. Notwithstanding the foregoing sentence, the Company shall pay (i) all reasonable attorneys’ fees and
expenses (including disbursements and out-of-pocket expenses) incurred by the Purchasers in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Transaction Documents and the transactions contemplated
thereunder, which payment shall be made at and in the event of the occurrence of the Initial Closing (which fees and expenses shall not exceed $35,000) and (ii) reasonable attorneys’ fees and expenses (including disbursements and
out-of-pocket expenses) agreed upon in writing by the Company in connection with any amendments, modifications or waivers of this Agreement or any of the other Transaction Documents. The Company shall pay all reasonable fees and expenses incurred by
the Purchasers in connection with the enforcement of this Agreement or any of the other Transaction Documents, including, without limitation, all reasonable attorneys’ fees and expenses but only if the Purchasers are successful in any
litigation or arbitration relating to such enforcement. 
 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 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 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.

  

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 (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 a majority of the outstanding principal balance of the Notes then
outstanding. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Notes then outstanding. 
 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: 
  

					
		 	If to the Company:	    	 39655 Eureka Drive
 Newark, California
94560
 Attn: Chief Executive Officer
 Facsimile: (510) 291-3001

  

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		 	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.

 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 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. 
  

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 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 include in any written materials, 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 Notes, the Warrants, the Warrant Shares, the Security Agreement and the other Transaction Documents. 
  

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 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/ Marc Whyte

		 	Marc C. Whyte, Chief Executive Officer

 [Company Signature Page to Note and Warrant Purchase Agreement] 

Table of Contents

			
	VISION OPPORTUNITY MASTER FUND, LTD.
		
	By:	 	 /s/ Adam Benowitz

	Name:	 	 Adam Benowitz

	Title:	 	 PM

 [Purchaser Signature Page to Note and Warrant Purchase Agreement] 

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 EXHIBIT A to the 
 NOTE AND WARRANT PURCHASE AGREEMENT FOR 
 NOVARAY MEDICAL, INC. 
 PURCHASERS AND AMOUNTS 
  

						
	 Names and Addresses of the Purchasers
	  	Purchase Price	  	 Notes & Warrants Purchased

	 Vision Opportunity Master Fund, Ltd.
 c/o Vision Capital Advisors, LLC
 20 West 55th
 Street, 5th
Floor
 New York, NY 10019
 Attn: Jess Jones
	  	$	2,750,000	  	 $2,750,000 principal amount of Note
  
 Warrants: 1,500,000

			
	 With a copy to:
	  			  	
			
	 Sadis and Goldberg LLP
 551 Fifth Avenue, 21st Floor
 New York, New York 10176
 Attn: Paul Fasciano, Esq.
	  			  	

  

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 EXHIBIT F to the 
 NOTE AND WARRANT AGREEMENT FOR 
 NOVARAY MEDICAL, INC. 
 FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS 
 as of July 2, 2009 
 Registrar and Transfer Company 
 10 Commerce Drive 
 Cranford New Jersey 07016 
 Ladies and Gentlemen: 
 Reference is made to that certain Note and Warrant Purchase Agreement (the
“Purchase Agreement”), dated as of July 2, 2009, 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 senior secured 12% convertible bridge notes (the “Notes”), and warrants (the “Warrants”) to purchase the
Company’s common stock, $0.0001 per share (the “Common Stock”). 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
shares of Common Stock 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 Exercise Notice, as
the case may be, in the form attached hereto as Exhibit I, (ii) in the case of the 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 Warrant Shares 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 Warrant Shares 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 Warrant Shares shall not bear any legend restricting transfer of the Warrant Shares thereby and should not be subject 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 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 

  

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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 Warrant Shares in the event a registration statement covering the Warrant Shares is
subject to amendment for events then current. 
 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 (510) 619-9200. 
  

			
	Very truly yours,
	
	NovaRay Medical, Inc.
		
	By:	 	 /s/ Marc Whyte

	Name:	 	Marc C. Whyte
	Title:	 	Chief Executive Officer

 ACKNOWLEDGED AND AGREED: 
  

			
	 REGISTRAR AND TRANSFER COMPANY

		
	 By:
	 	
	 Name:
	 	
	 Title:
	 	
	 Date:
	 	

  

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 EXHIBIT I 
 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 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	 	  

		 		 		 	  

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 FOR USE BY THE ISSUER ONLY: 
 This Warrant No. W-            canceled (or transferred or exchanged) this             day of
                    ,             , shares of Common Stock issued therefor in the name of
                        , Warrant No. W-            issued for
            shares of Common Stock in the name of
                        .Senior Secured 12% Convertible Bridge Note

 Exhibit 10.2 
 THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE COMPANY OF A WRITTEN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS. 
 NOVARAY MEDICAL, INC. 
 Senior Secured 12% Convertible Bridge Note 
 Date: July 2, 2009 
 $2,750,000 
 For value received, NOVARAY MEDICAL, INC., a Delaware corporation (the “Company”), hereby promises to pay to the order of Vision
Opportunity Master Fund, Ltd. (together with its successors, representatives, and permitted assigns, the “Holder”), in accordance with the terms hereinafter provided, the principal amount of two million seven hundred fifty
thousand dollars ($2,750,000) dollars, together with interest thereon. The Company is issuing this senior secured 12% convertible bridge note (the “Note”) to the Holder pursuant to the Purchase Agreement (as defined in
Section 1.1 hereof). Any other senior secured 12% convertible bridge notes issued pursuant to the Purchase Agreement shall hereinafter be referred to as the “Other Notes” and such Holders as the
“Other Holders”, collectively, this Note and the Other Notes are referred to as the “Notes.” 
 All payments under or pursuant to this Note shall be made in United States Dollars in immediately available funds to the Holder at the address of the Holder as set forth in the Purchase Agreement or at such other place as the Holder may
designate from time to time in writing to the Company or by wire transfer of funds to the Holder’s account, instructions for which are attached hereto as Exhibit A. Unless otherwise converted into shares of Qualified Financing
Stock or exchanged for a warrant to purchase Common Stock in accordance with the terms of this Note, the outstanding principal balance and all accrued Interest (as defined herein) of this Note shall be due and payable on December 31, 2009 (the
“Maturity Date”) or at such earlier time as provided herein. 
 This Note is secured by a Security Agreement dated
the date hereof (the “Security Agreement”) of the Company in favor of the Holder covering certain collateral (the “Collateral”), all as more particularly described and provided therein, and is entitled
to the benefits thereof. The Security Agreement, the Uniform Commercial Code financing statements in connection with the Security Agreement and any and all other documents executed and delivered by the Company to the Holder under which the Holder is
granted liens on assets of the Company are collectively referred to as the “Security Documents.” 

 ARTICLE I 
 Section 1.1 Purchase Agreement. This Note has been executed and delivered pursuant to the Note and Warrant Purchase Agreement dated as of July 2, 2009 (the “Purchase
Agreement”) by and among the Company and the purchasers listed therein. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. 
 Section 1.2 Interest. Beginning on the issuance date of this Note (the “Issuance Date”), the outstanding
principal balance of this Note shall bear interest (“Interest”), at a rate per annum equal to twelve percent (12%), so long as any principal amount evidenced by this Note remains outstanding. Interest shall be payable in cash
on the Maturity Date. Interest shall be computed on the basis of a 360-day year of twelve (12) 30-day months and shall accrue commencing on the Issuance Date. Furthermore, upon the occurrence of an Event of Default (as defined in
Section 2.1 hereof), then to the extent permitted by law, the Company will pay Interest in cash to the Holder, payable on demand, on the outstanding principal balance of this Note from the date of the Event of Default through the
date of payment at a new rate of the lesser of fifteen percent (15%) and the maximum applicable legal rate per annum (the “Default Rate”).  
 Section 1.3 Ranking and Covenants. The Company hereby represents and warrants to the Holder as of the Issuance Date (except as set forth in the schedule of exceptions delivered by the Company to the
Holder) as follows: 
 (a) Subject to the pay-off of debt owed to Triple Ring Technologies, Inc. and the concomitant release of its lien on
all Company assets, no indebtedness of the Company is senior to this Note in right of payment, whether with respect to interest, damages or upon liquidation or dissolution or otherwise. Except for Permitted Encumbrances (as defined below), the
Company will not, and will not permit any subsidiary to, directly or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of any kind, that is senior in any respect to the Company’s obligations under the Notes, and
the Company will not, and will not permit any subsidiary to, directly or indirectly, incur any lien on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom,
except for indebtedness with respect to capital leases incurred in the ordinary course of business. 
 (b) So long as any principal amount on
any Notes are outstanding, neither the Company nor any subsidiary shall, directly or indirectly, redeem, purchase or otherwise acquire any of the Company’s capital stock or set aside any monies for such a redemption, purchase or other
acquisition except for repurchases of shares of Common Stock pursuant to that certain restricted stock purchase agreement dated October 23, 2006 with Jack Price and exchange of Series A Preferred Stock of the Company for Series A-1 Preferred
Stock and cash pursuant to the Exchange Agreements (as defined in the Purchase Agreement). 
 (c) The Company shall perform any and all acts
and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any 

  

 2 

 
financing statement and continuation statement) for filing under the provisions of the Uniform Commercial Code (the “UCC”), and the
rules and regulations thereunder, or any other statute, rule or regulation of any applicable jurisdiction which are necessary and/or advisable at the request of the Holder or its counsel in order to maintain in favor of the Holder of this Note, a
valid and perfected lien on the Collateral (as defined in the Security Agreement). 
 Section 1.4 Payment on Non-Business Days.
Whenever any payment to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of New York, such payment may be due on the next succeeding business day and such next succeeding day shall be included in the
calculation of the amount of accrued Interest payable on such date. 
 Section 1.5 Transfer. Except as set forth below, this Note
may be transferred or sold, subject to the provisions of Section 4.8 of this Note, or pledged, hypothecated or otherwise granted as security by the Holder. This Note may not be transferred or sold or pledged, hypothecated or
otherwise granted as security by the Holder by operation of law or otherwise to any competitor of the Company, General Electric Co., Koninklijke Philips Electronics N.V., Siemens AG, Toshiba Corporation, Baytree Capital Associates, LLC or any of
their affiliates without written consent of the Company. 
 Section 1.6 Replacement. Upon receipt of a duly executed and
notarized written statement from the Holder with respect to the loss, theft or destruction of this Note (or any replacement hereof) and a standard indemnity reasonably satisfactory to the Company, or, in the case of a mutilation of this Note, upon
surrender and cancellation of such Note, the Company shall issue a new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated Note. 
 ARTICLE II 
 EVENTS OF DEFAULT; REMEDIES 
 Section 2.1 Events of Default. The occurrence of any of the following events shall be an “Event of Default” under
this Note: 
 (a) the Company shall fail to make any principal or Interest payments due under this Note on the date such payments are due and
such default is not fully cured within two (2) business days after the occurrence thereof; or 
 (b) default shall be made in the
performance or observance of any covenant, condition or agreement contained in this Note or any other Transaction Document and such default is not fully cured within fifteen (15) business days after the Holder delivers written notice to the
Company of the occurrence thereof; or 
 (c) any material representation or warranty made by the Company herein or in the Purchase Agreement,
the Other Notes, the Warrants, the Security Documents or any other Transaction Document shall prove to have been false or incorrect or breached in a material respect on the date as of which made; or 
  

 3 

 (d) the Company shall (i) apply for or consent to the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or assets, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the United States
Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a petition seeking to take advantage of any bankruptcy, insolvency, moratorium, reorganization or other similar
law affecting the enforcement of creditors’ rights generally, (v) acquiesce in writing to any petition filed against it in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws
of any jurisdiction (foreign or domestic), or (vi) issue a notice of bankruptcy of ceased operations or issue a press release regarding same; or 
 (e) a proceeding or case shall be commenced in respect of the Company by a party other than a Holder or Other Holder, without its application or consent, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, moratorium, dissolution, winding up, or composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets
in connection with its liquidation or dissolution or (iii) similar relief in respect of it under any law providing for the relief of debtors, and such proceeding or case described in clause (i), (ii) or (iii) shall continue
undismissed, or unstayed and in effect, for a period of thirty (30) days or any order for relief shall be entered in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any
jurisdiction (foreign or domestic) against the Company or action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing shall be taken with respect to the Company and shall continue undismissed, or unstayed and in
effect for a period of thirty (30) days; or 
 (f) the occurrence of a material event of default under any other Transaction Document
not otherwise provided for in Section 2.1(a), (b), (c), (d) or (e) hereof. 
 Section 2.2 Remedies Upon An Event of
Default. If an Event of Default shall have occurred and shall be continuing, the Holder of this Note may at any time at its option, (a) declare the entire unpaid principal balance of this Note, together with all Interest accrued hereon, due
and payable, and thereupon, the same shall be accelerated and so due and payable, without presentment, demand, protest, or notice, all of which are hereby expressly unconditionally and irrevocably waived by the Company; provided, however,
that upon the occurrence of an Event of Default described in Sections 2.1(d) or (e), the outstanding principal balance and accrued Interest hereunder shall be automatically due and payable, or (b) exercise or
otherwise enforce any one or more of the Holder’s rights, powers, privileges, remedies and interests under this Note, the Purchase Agreement, the Security Documents or applicable law. No course of delay on the part of the Holder shall operate
as a waiver thereof or otherwise prejudice the right of the Holder. No remedy conferred hereby shall be exclusive of any other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 
  

 4 

 ARTICLE III 
 MANDATORY CONVERSION; ANTI-DILUTION; ETC. 
 Section 3.1 Mandatory Conversion. Effective as of
the closing (the “Mandatory Conversion Date”) of a Qualified Financing (as defined below) and subject to Section 3.4 below, any and all outstanding principal and accrued Interest represented by this Note shall
automatically (without further act or deed of the Holder or the Company) convert (the “Mandatory Conversion”) into the type or package of securities of the Company issued or issuable by the Company in the Qualified Financing
(the “Qualified Financing Stock”) by dividing (x) the outstanding principal balance and accrued Interest under this Note as of the Mandatory Conversion Date by (y) a conversion price which shall be equal to the
lesser of (i) eighty-five percent (85%) of the price per share at which the Company sells a share of Qualified Financing Stock in the Qualified Financing or (ii) the Conversion Price (as defined in Section 3.2(a)).
A “Qualified Financing” shall occur when a sale by the Company of shares of equity of the Company to one or more purchasers generates not less than gross proceeds to the Company of $5,000,000 (exclusive of amounts paid for
cancellation or conversion of the Notes) prior to the Maturity Date in a transaction or series of related transactions as part of multiple closings under materially similar set of terms. Qualified Financing Stock shall include subsequent issuances
of equity issued pursuant to definitive agreements for such Qualified Financing. The Company shall cause notice of the Mandatory Conversion (the “Mandatory Conversion Notice”) to be mailed to the Holder, at such Holder’s
address, at least ten (10) days prior to the Mandatory Conversion Date. On or before the Mandatory Conversion Date, the Holder shall surrender this Note at the place designated in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Qualified Financing Stock which shall be issuable on such conversion shall be issued. 
 Section 3.2 Conversion Price. 
 (a) The term “Conversion Price” shall
mean $2.67, subject to adjustment under Section 3.5 hereof. 
 (b) The term “Conversion
Securities” shall mean Qualified Financing Stock issuable upon a Mandatory Conversion of this Note in connection with the occurrence of a Qualified Financing. 
 Section 3.3 Mechanics of Conversion. Not later than ten (10) Trading Days after the Mandatory Conversion Date (the “Delivery
Date”), the Company or its designated transfer agent, as applicable, shall issue and deliver to the Holder, the Conversion Securities as specified in the Mandatory Conversion Notice. Notwithstanding the foregoing, in the alternative,
not later than the Delivery Date, the Company shall deliver to the Holder by express courier a certificate or certificates which shall be free of restrictive legends and trading restrictions (other than those required by
Section 5.1 of the Purchase Agreement and/or the related documentation of the Qualified Financing, as the case may be) representing the number of Conversion Securities being acquired upon the conversion of this Note. 

 

 5 

 Section 3.4 Ownership Cap and Certain Conversion Restrictions. Notwithstanding anything to
the contrary set forth in Section 3 of this Note, at no time may all or a portion of this Note be converted into shares of Common Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed,
when aggregated with all other shares of Common Stock owned by the Holder and its affiliates at such time, the number of shares of Common Stock which would result in the Holder and its affiliates beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules thereunder) more than 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon the Holder of this Note providing the Company with sixty-one
(61) days notice (pursuant to Section 4.1 hereof) (the “Waiver Notice”) that such Holder would like to waive this Section 3.4 with regard to any or all shares of Common Stock
issuable upon conversion of this Note, this Section 3.4 will be of no force or effect with regard to all or a portion of the Note referenced in the Waiver Notice; provided, further, that during the sixty-one
(61) day period prior to the Maturity Date of this Note the Holder may waive this Section 3.4 upon providing the Waiver Notice at any time during such sixty-one (61) day period; and provided, further, that
any Waiver Notice during the sixty-one (61) day period prior to the Maturity Date will not be effective until the Maturity Date. In the event of a Qualified Financing and all or a portion of this Note cannot be converted into shares of
Common Stock as a result of the restrictions set forth in this Section 3.4 (the “Ownership Limitation”), the Company shall comply with its Mandatory Conversion obligations set forth in Section 3.1 above to the extent consistent
with such Ownership Limitation. In the event that the Common Stock issuable to the Holder upon such Qualified Financing exceeds the Ownership Limitation, on the Mandatory Conversion Date, the Company shall issue to Holder a warrant exerciseable for
that number of shares of Common Stock that such Holder would have received above the Ownership Limitation had the Note been fully converted in accordance with Section 3.1 (the “Conversion Warrant”). The Conversion
Warrant shall have an exercise price of $0.001 per share and be substantially in the form attached hereto as Exhibit A. The issuance of the Conversion Warrant shall be in full satisfaction of all indebtedness owed by the Company pursuant to the
Note. 
 Section 3.5 Adjustment of Conversion Price. 
 (a) Until such time that no outstanding principal balance remains under this Note, the Conversion Price shall be subject to adjustment from time to time
as follows: 
 (i) Adjustments for Stock Splits and Combinations. If the Company shall at any time or from time to time after the
Issuance Date, effect a stock split of the outstanding Common Stock, the applicable Conversion Price in effect immediately prior to the stock split shall be proportionately decreased. If the Company shall at any time or from time to time after the
Issuance Date, combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustments under this Section 3.5(a)(i) shall
be effective at the close of business on the date the stock split or combination occurs. 
 (ii) Adjustments for Certain Dividends and
Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in
shares of Common Stock, then, and in each event, the applicable 

  

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Conversion Price in effect immediately prior to such event shall be decreased as of the time of such issuance or, in the event such record date shall have
been fixed, as of the close of business on such record date, by multiplying, the applicable Conversion Price then in effect by a fraction: 
 (1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and 
 (2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance
or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution. 
 (iii) Adjustment for Other Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion
Price or otherwise) so that the holder of this Note shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had this Note
been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such
period), giving application to all adjustments called for during such period under this Section 3.5(a)(iii) with respect to the rights of the holders of this Note and the Other Notes; provided, however, that if such record
date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted to the Conversion Price in effect immediately prior to such adjustment until
the time of actual payment of such dividends or distributions. 
 (iv) Adjustments for Reclassification, Exchange or Substitution. If
the Company’s Common Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise
(other than by way of a stock split or combination of shares or stock dividends provided for in Sections 3.5(a)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided
for in Section 3.5(a)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder shall have the
right thereafter to convert this Note into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such Note
might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein. 
 (v) Adjustments for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance Date there shall be a capital 

  

 7 

 
reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in
Section 3.5(a)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 3.5(a)(iv)), or a merger or consolidation of the Company with
or into another corporation where the holders of outstanding voting securities of the Company prior to such merger or consolidation do not own over fifty percent (50%) of the outstanding voting securities of the merged or consolidated entity,
immediately after such merger or consolidation, or the sale of all or substantially all of the Company’s properties or assets to any other person (an “Organic Change”), then as a part of such Organic Change, (A) if
the surviving entity in any such Organic Change is a public company that is registered pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and its common stock is listed or quoted on a national
exchange or the OTC Bulletin Board, an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price) so that the Holder shall have the right thereafter to convert such Note into the
kind and amount of shares of stock and other securities or property of the Company or any successor corporation as it would have received as a result of such Organic Change if it had converted this Note into Common Stock immediately prior to such
Organic Change, and (B) if the surviving entity in any such Organic Change is not a public company that is registered pursuant to the Exchange Act, or its common stock is not listed or quoted on a national exchange or the OTC Bulletin Board,
this Note and any accrued Interest shall be immediately due and payable, in cash, to the Holder. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3.5(a)(v) with respect to
the rights of the Holder after the Organic Change to the end that the provisions of this Section 3.5(a)(v) (including any adjustment in the applicable Conversion Price then in effect and the number of shares of stock or other
securities deliverable upon conversion of this Note) shall be applied after that event in as nearly an equivalent manner as may be practicable. 
 (vi) Adjustments for Issuance of Additional Shares of Common Stock.  
 (1) In the event the Company shall issue or
sell any additional shares of common stock prior to the Mandatory Conversion Date (otherwise than as provided in the foregoing subsections (i) through (v) of this Section 3.5(a) or pursuant to Common Stock Equivalents
(hereafter defined) or Common Stock granted or issued prior to the Issuance Date) (“Additional Shares of Common Stock”), at a price per share less than the Conversion Price then in effect or without consideration (the
“New Conversion Price”), then the Conversion Price upon each such issuance shall be reduced to an amount equal to such New Conversion Price. 
 (2) The provisions of paragraph (1) of this Section 3.5(a)(vi) shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under
Section 3.5(a)(vii). No adjustment of the number of shares of Common Stock for which this Note shall be convertible shall be made under paragraph (1) of this Section 3.5(a)(vi) upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the exercise of any Common Stock Equivalents, if any such adjustment shall previously have been made upon the issuance of such Common Stock Equivalents pursuant to
Section 3.5(a)(vii). 
 (vii) Issuance of Common Stock Equivalents. In the event the Company shall at any time
prior to the Mandatory Conversion Date issue any securities 

  

 8 

 
convertible into or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), other than Other Notes,
related Warrants or Series A-1 Preferred Stock of the Company, or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold (collectively, the “Common Stock
Equivalents”) and the aggregate price per share for which Additional Shares of Common Stock may be issuable thereafter pursuant to such Common Stock Equivalent, plus the consideration received by the Company for issuance of such Common
Stock Equivalent divided by the number of shares of Common Stock issuable pursuant to such Common Stock Equivalent (the “Aggregate Per Common Share Price”) shall be less than the applicable Conversion Price then in effect, or
if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall make the Aggregate Per Common Share Price
be less than the applicable Conversion Price in effect at the time of such amendment or adjustment, then the applicable Conversion Price upon each such issuance or amendment shall be adjusted as provided in the first sentence of subsection
(vi) of this Section 3.5(a) on the basis that (1) the maximum number of Additional Shares of Common Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to have been issued (whether or not such
Common Stock Equivalents are actually then exercisable, convertible or exchangeable in whole or in part) as of the earlier of (A) the date on which the Company shall enter into a firm contract for the issuance of such Common Stock Equivalent,
or (B) the date of actual issuance of such Common Stock Equivalent. No adjustment of the applicable Conversion Price shall be made under this subsection (vii) upon the issuance of any Convertible Security which is issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if any adjustment shall previously have been made to the exercise price of such warrants or other subscription or purchase rights therefor, then in effect upon the issuance
of such warrants or other subscription or purchase rights therefor pursuant to this subsection (vii). No adjustment shall be made to the Conversion Price upon the issuance of Common Stock pursuant to the exercise, conversion or exchange of any
Convertible Security or Common Stock Equivalent where an adjustment to the Conversion Price was made as a result of the issuance or purchase of any Convertible Security or Common Stock Equivalent. 
 (viii) Consideration for Stock. In case any shares of Common Stock or any Common Stock Equivalents shall be issued or sold: 
 (1) in connection with any merger or consolidation in which the Company is the surviving corporation (other than any consolidation or merger in which
the previously outstanding shares of Common Stock of the Company shall be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefor shall be, deemed to be the fair market value, as
determined reasonably and in good faith by the board of directors of the Company (the “Board”), of such portion of the assets and business of the nonsurviving corporation as the Board may determine to be attributable to such
shares of Common Stock, Convertible Securities, rights or warrants or options, as the case may be; or 
 (2) in the event of any
consolidation or merger of the Company in which the Company is not the surviving corporation or in which the previously outstanding shares of Common Stock of the Company shall be changed into or exchanged for the stock or other securities of another
corporation, or in the event of any sale of all or substantially all of the 

  

 9 

 
assets of the Company for stock or other securities of any corporation, the Company shall be deemed to have issued a number of shares of its Common Stock for
stock or securities or other property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated, and for a consideration equal to the fair market value on the date of such transaction of all
such stock or securities or other property of the other corporation. If any such calculation results in adjustment of the applicable Conversion Price, or the number of shares of Common Stock issuable upon conversion of the Notes, the determination
of the applicable Conversion Price or the number of shares of Common Stock issuable upon conversion of the Notes immediately prior to such merger, consolidation or sale, shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Notes. In the event Common Stock is issued with other shares or securities or other assets of the Company for consideration which covers both, the consideration computed as provided in this
Section 3.5(viii) shall be allocated among such securities and assets as determined in good faith by the Board. 
 (b)
Record Date. In case the Company shall take record of the holders of its Common Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of
Common Stock shall be deemed to be such record date. 
 (c) Certain Issues Excepted. Anything herein to the contrary notwithstanding,
the Company shall not be required to make any adjustment to the Conversion Price in connection with (i) shares of Common Stock issued pursuant to a transaction described in Section 3.5(a)(iii) hereof; (ii) up to
3,750,000 shares of Common Stock (as adjusted for any stock splits, stock dividends, combinations, recapitalizations or the like) issued or deemed issued to employees, officers, or directors (if in transactions with primarily non-financing purposes)
of the Company directly or pursuant to a stock option plan or restricted stock purchase plan approved by the Board; (iii) shares of Common Stock issued or issuable (I) in a bona fide, firmly underwritten public offering under the
Securities Act before which or in connection with which all outstanding shares of the Preferred Stock will be automatically converted to Common Stock, or (II) upon exercise of warrants or rights granted to underwriters in connection with such a
public offering; (iv) shares of Common Stock issued pursuant to the conversion or exercise of convertible or exercisable securities outstanding as of the date of the Purchase Agreement or subsequently issued after the date of the Purchase
Agreement in accordance with this definition; (v) shares of Common Stock issued or issuable in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise, each as approved by the Board; (vi) up to 500,000 shares of Common Stock (as adjusted for any stock splits, stock dividends, combinations, recapitalizations or the like) issued or issuable to persons or entities with which this
Issuer has business relationships provided such issuances are for other than primarily equity financing purposes; (vii) shares of Common Stock issued or issuable in connection with any transaction where such securities so issued are excepted
from the definition “Additional Shares of Common Stock” by the affirmative vote of the Holders of at least a majority of the principal amount of the Notes issued pursuant to the Purchase Agreement; or (viii) up to 1,332,000 shares of
Common Stock (as adjusted for any stock splits, stock dividends, combinations, recapitalizations or the like) issued or issuable to Triple Ring Technologies, Inc. pursuant to warrants issued by the Issuer as of the date hereof as such warrants may
be amended by vote of the Audit Committee of the Company. 
  

 10 

 (d) No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith, assist in the carrying out of all the provisions of this Section 3.5 and in the taking of all such action as may be necessary or appropriate in order to protect the
conversion rights of the Holder against impairment. In the event a Holder shall elect to convert any Notes as provided herein, the Company cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such
Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, or notice, restraining and or adjoining conversion of all or of said Notes
shall have issued and the Company posts a surety bond for the benefit of such Holder in an amount equal to one hundred percent (100%) of the amount of the Notes the Holder has elected to convert, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder (as liquidated damages) in the event it obtains judgment. 
 (e) Certificates as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Price or number of Conversion Securities issuable upon conversion of this Note pursuant to this
Section 3.5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Holder a certificate setting forth such adjustment and readjustment, showing in
detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request of the Holder, at any time, furnish or cause to be furnished to the Holder a like certificate setting forth such adjustments and
readjustments, the applicable Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of this Note.
Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent (1%) of such adjusted amount. 
 (f) Issue Taxes. The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of securities on conversion of this Note pursuant thereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by the Holder in connection
with any such conversion. 
 (g) Fractional Shares. No fractional shares of Conversion Securities shall be issued upon conversion of
this Note. In lieu of any fractional shares to which the Holder would otherwise be entitled, the Company shall pay cash equal to the product of the fraction that would evidence such fractional shares multiplied by the average of the Closing Bid
Prices of the Common Stock for the five (5) consecutive Trading Days immediately preceding the Conversion Date. The term “Closing Bid Price” shall mean, on any particular date (i) the last closing bid price per
share of the Common Stock on such date on the OTC Bulletin Board or another registered national stock exchange on which the Common Stock is then listed, or if there is no such price on such date, then the last closing bid price on such exchange or
quotation system on the date nearest preceding such date, or (ii) if the Common Stock is not listed then on the OTC 

  

 11 

 
Bulletin Board or any registered national stock exchange, the last trading price for a share of Common Stock in the over-the-counter market, as reported by
the OTC Bulletin Board or in the National Quotation Bureau Incorporated or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (iii) if the Common Stock is not then reported
by the OTC Bulletin Board or the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), then the average of the “Pink Sheet” quotes for the relevant conversion period, as
determined in good faith by the Holder and reasonably acceptable to the Company, or (iv) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by the Holder and reasonably acceptable to
the Company. 
 Section 3.6 No Rights as Stockholder. Nothing contained in this Note shall be construed as conferring upon the
Holder, prior to the conversion of this Note, the right to vote or to receive dividends or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or of any other
matter, or any other rights as a stockholder of the Company. 
 ARTICLE IV 
 MISCELLANEOUS 
 Section 4.1 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 facsimile at the address or number designated in the Purchase Agreement (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 Company will give written notice to the Holder at least
ten (10) days prior to the date on which the Company takes a record (x) with respect to any dividend or distribution upon the Common Stock, (y) with respect to any pro rata subscription offer to holders of Common Stock or (z) for
determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up but in no event shall such notice be provided to the Holder prior to such information being made known to the public. The Company will also give
written notice to the Holder at least ten (10) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place but in no event shall such notice be provided to the Holder prior to such information
being made known to the public. The Company shall promptly notify the Holder of any notices sent or received, or any actions taken with respect to the Other Notes. 
 Section 4.2 Governing Law; Consent to Jurisdiction. The parties acknowledge and agree that any claim, controversy, dispute or action relating in any way to this agreement or the subject matter of this
agreement shall be governed solely by the laws of the State of New York, without regard to any conflict of laws doctrines. The parties irrevocably consent to being served with legal process issued from the state and federal courts located in New
York and irrevocably consent to the exclusive personal jurisdiction of the federal and state courts situated 

  

 12 

 
in the State of New York. The parties irrevocably waive any objections to the personal jurisdiction of these courts. Said courts shall have sole and
exclusive jurisdiction over any and all claims, controversies, disputes and actions which in any way relate to this agreement or the subject matter of this agreement. The parties also irrevocably waive any objections that these courts constitute an
oppressive, unfair, or inconvenient forum and agree not to seek to change venue on these grounds or any other grounds. Nothing in this Section 4.2 shall affect or limit any right to serve process in any other manner permitted by
law. 
 Section 4.3 Headings. Article and section headings in this Note are included herein for purposes of convenience of
reference only and shall not constitute a part of this Note for any other purpose. 
 Section 4.4 Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including, without limitation, a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holder’s right to pursue actual damages for any
failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder hereof and shall
not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable and material harm to the
Holder and that the remedy at law for any such breach may be inadequate. Therefore the Company agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available rights and remedies,
at law or in equity, to seek and obtain such equitable relief, including but not limited to an injunction restraining any such breach or threatened breach, without the necessity of showing economic loss and without any bond or other security being
required. 
 Section 4.5 Enforcement Expenses. The Company agrees to pay all costs and expenses of the Holder incurred as a
result of enforcement of this Note, including, without limitation, reasonable attorneys’ fees and expenses. 
 Section 4.6
Binding Effect. The obligations of the Company and the Holder set forth herein shall be binding upon the successors and assigns of each such party, whether or not such successors or assigns are permitted by the terms hereof. In the event that
the Company does not receive at least two million seven hundred fifty thousand dollars ($2,750,000) in gross proceeds from the Initial Closing (as defined in the Purchase Agreement) on or prior to July 6, 2009, the Company may terminate this
Note upon written notice to the Holder. 
 Section 4.7 Amendments. This Note may not be modified or amended in any manner except
in writing executed by the Company and the Holder. 
 Section 4.8 Compliance with Securities Laws. The Holder of this Note
acknowledges that this Note is being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment, and that the Holder shall not offer, sell or otherwise dispose of this Note. This Note and any Note
issued in substitution or replacement therefor shall be stamped or imprinted with a legend in substantially the following form: 
 “THIS
NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE COMPANY OF A WRITTEN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.” 
  

 13 

 Section 4.9 Accredited Investor Status. In no event may the Holder convert this Note in whole
or in part unless the Holder is an “accredited investor” as defined in Regulation D under the Act. 
 Section 4.10 Parties
in Interest. This Note shall be binding upon, inure to the benefit of and be enforceable by the Company, the Holder and their respective successors and permitted assigns. 
 Section 4.11 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege, nor shall any waiver by the Holder of
any such right or rights on any one occasion be deemed a waiver of the same right or rights on any future occasion. 
 Section 4.12
Company’s Waivers. 
 (a) Except as otherwise specifically provided herein, the Company and all others that may become liable for
all or any part of the obligations evidenced by this Note, hereby waive presentment, demand, notice of nonpayment, protest and all other demands’ and notices in connection with the delivery, acceptance, performance and enforcement of this Note,
and do hereby consent to any number of renewals of extensions of the time or payment hereof and agree that any such renewals or extensions may be made without notice to any such persons and without affecting their liability herein and do further
consent to the release of any person liable hereon, all without affecting the liability of the other persons, firms or the Company liable for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY JURY. 
 (b) THE COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE 

  

 14 

 
EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR
ASSIGNS MAY DESIRE TO USE. 
 Section 4.13 Definitions. For the purposes hereof, the following terms shall have the following
meanings: 
 “Convertible Securities” means any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock or Common Stock Equivalents. 
 “Options” shall
mean any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities of the Company. 
 “Permitted Encumbrances” has the meaning ascribed to it in the Security Agreement. 
 “Person” means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind. 
 “Preferred Stock” means shares of the Company’s
Series A-1 Convertible Preferred Stock, par value $0.0001 per share. 
 “Trading Day” means (a) a day on
which the Common Stock is traded on the OTC Bulletin Board, or (b) if the Common Stock is not traded on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); provided, however, that in the event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then
Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close. 
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 15 

 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out
above. 
  

			
	NOVARAY MEDICAL, INC.
		
	By:	 	 /s/ Marc Whyte

	Name:	 	Marc Whyte
	Title:	 	CEO

  

 16

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