Document:

exv10w3

 

Exhibit 10.3

EXECUTIVE EMPLOYMENT AGREEMENT

     This Executive Employment Agreement (“Agreement”) is entered into by and between NovaRay Inc.,
a Delaware corporation with its principal place of business at 1850 Embarcadero Road, Palo Alto CA
94303 (“Company”) and Edward Solomon, who resides at 1110 Orange Ave., Menlo Park, California,
94025 (“Executive”) (collectively, the “parties”).

RECITALS

     WHEREAS, Vision Acquisition I, Inc., a Delaware Corporation (“Parent”), Vision Acquisition
Subsidiary, Inc. a Delaware Corporation and a wholly-owned subsidiary of Parent (“Merger Sub”) and
Company are in the process of negotiating a merger agreement (the “Merger Agreement”), pursuant to
which Merger Sub would merge with and into Company, with Company remaining as the surviving entity
after the merger (the “Merger”) whereby the stockholders of Company would receive common stock of
Parent in exchange for their capital stock of Company;

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

     WHEREAS, the parties wish to provide for Executive’s employment with Company following the
Proposed Transaction; and

     WHEREAS, this Agreement shall become effective upon the date of the Proposed Transaction (the
“Effective Date”).

     NOW, THEREFORE, in consideration of the covenants, promises and representations set forth
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:

     1. Employment. As of the Effective Date, Company shall employ Executive, and
Executive hereby accepts such employment, upon the terms and conditions set forth herein.

     2. Duties.

          2.1. Position. Executive shall be employed in the position of Chief Technical Officer
reporting to the Company’s Chief Executive Officer. Executive is responsible for setting and
ensuring that the scientific and development direction of Company is achieved; and overseeing all
intellectual property and science and development related concerns of Company. Executive shall
perform faithfully and diligently such duties, as well as such other duties as Company shall
reasonably assign from time to time. Executive also agrees to serve as an officer or director of
Company or Parent upon request, without further compensation. Company reserves the right to
reasonably modify Executive’s position and duties at any time in its sole and absolute discretion.

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          2.2. Best Efforts/Full-time. Executive will expend Executive’s best efforts on behalf
of Company, and will abide by all policies and decisions made by Company, as well as all applicable
federal, state and local laws, regulations or ordinances. Executive will act in the best interest
of Company at all times. Executive shall devote Executive’s full business time and efforts to the
performance of Executive’s assigned duties, unless Executive notifies Company in advance of
Executive’s desire to engage in other work or business activities and receives Company’s express
written consent to do so. Company acknowledges that Executive is a Director and major shareholder
of Triple Ring Technologies, and agrees that Executive may continue in these capacities provided
that they do not give rise to a conflict of interest with Company. In no event shall Executive
engage in any activity, paid or unpaid, that creates an actual or potential conflict of interest
with Company (including but not limited to any work or business activity that is or might be
competitive with, or that might place Executive in a competing position to that of Company).

          2.3. Work Location. Executive’s principal place of work shall be located in Palo
Alto, at Company’s offices.

     3. Term. The employment relationship pursuant to this Agreement shall be for an
initial term commencing on the Effective Date set forth above and continuing until terminated in
accordance with Section 7 below.

     4. Compensation.

          4.1. Salary. As compensation for the proper and satisfactory performance of all
duties to be performed by Executive hereunder, Company shall pay to Executive a Base Salary of
$285,000.00 per year, less applicable withholdings, payable in accordance with the normal payroll
practices of Company. In the event Executive’s employment under this Agreement is terminated by
either party, for any reason, Executive will be entitled to receive his Base Salary earned through
the date of such termination.

          4.2. Incentive Compensation. Executive may be granted incentive compensation in the
Company’s discretion. If Company, in its sole and absolute discretion, grants Executive incentive
compensation, the terms, amount and payment of such incentive compensation will be determined
solely by Company.

          4.3. Stock Options. Executive may be granted stock options from time to time in the
discretion of Company subject to the terms and conditions of a Company approved stock option plan
and pursuant to the stock option agreement under which such options are granted.

          4.4. Performance and Salary Review. Company will periodically review Executive’s
performance on no less than an annual basis. Executive’s salary or other compensation may be
adjusted from time to time in Company’s sole and absolute discretion.

     5. Customary Fringe Benefits. Executive will be eligible for all customary and usual
fringe benefits generally available to executives of Company subject to the terms and conditions

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of Company’s benefit plan documents. Company reserves the right to modify or eliminate the fringe
benefits on a prospective basis, at any time, effective upon notice to Executive.

     6. Business Expenses. Executive will be reimbursed for all out-of-pocket business
expenses reasonably incurred in the performance of Executive’s duties on behalf of Company. To
obtain reimbursement, expenses must be submitted promptly with appropriate supporting documentation
in accordance with Company’s policies.

     7. Termination of Employment.

          7.1. Termination for Cause by Company. Company may terminate Executive’s employment
immediately at any time for Cause if: (a) Executive engages in any acts or omissions constituting
gross negligence, recklessness, willful misconduct or dishonesty on the part of Executive with
respect to Executive’s obligations or otherwise relating to the business of Company; (b) Executive
breaches a material term of this Agreement; (c) Executive is convicted of or enters a plea of nolo
contendere for fraud, misappropriation or embezzlement, or of any crime or engaging in any conduct
which Company, in its discretion, determines has or may adversely impact Company; (d) Executive
breaches his fiduciary duties toward Company; (e) Executive breaches or violates his obligations
under the Confidential Information and Invention Assignment Agreement referenced in Section 9
below; (f) Executive persistently fails to satisfactorily perform his duties and responsibilities;
(g) Executive refuses to follow a specific, lawful direction or order of the Company or its Board
of Directors; and (h) Executive dies or becomes mentally or physically incapacitated and cannot
perform the essential functions and duties of his position. In the event Executive’s employment is
terminated in accordance with this subparagraph 7.1, Executive shall be entitled to receive only
(x) his Base Salary then in effect, earned through the date of such termination, (y) benefits
coverage through the date of such termination, and (z) reimbursement of business expenses properly
incurred prior to the date of such termination and submitted in accordance with the Company’s
policies (collectively referred to as “Standard Entitlements”). All benefits and perquisites of
employment shall cease as of the date of termination, and all other Company obligations to
Executive pursuant to this Agreement will become automatically terminated and completely
extinguished on the date of termination. Without limiting the foregoing, in the event of a
termination for Cause, Executive will not be eligible to receive the Severance Benefits or any part
thereof described in subparagraph 7.2 below.

          7.2. Termination Without Cause By Company/Severance. Company may terminate
Executive’s employment under this Agreement without Cause at any time. In the event of such
termination, Executive will receive the Standard Entitlements plus the following Severance
Benefits: (a) twelve (12) months of Executive’s Base Salary then in effect on the date of
termination, payable in the form of salary continuation (the “Severance Pay”), and (b) the vesting
of any stock options held by Executive at the time of such termination will accelerate as to the
number of shares that otherwise would have vested and been exercisable as of the date that is
twenty-four (24) months from the date of termination. The Severance Pay will be payable in
accordance with Company’s regular payroll cycle. Executive’s receipt of the Severance Benefits
will be contingent upon: (x) Executive’s compliance with all surviving provisions of this
Agreement as specified in subparagraph 15.7 below; (y) Executive’s execution of a full general
release in a form provided by the Company, releasing all claims, known or unknown, that

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Executive may have against Company arising out of or any way related to Executive’s employment or
termination of employment with Company; and (z) Executive’s agreement to act as a consultant for
Company for up to a maximum of sixty (60) calendar days immediately following the date of
termination, without additional compensation, if requested to do so by Company. All other Company
obligations to Executive pursuant to this Agreement will become automatically terminated and
completely extinguished.

          7.3. Voluntary Resignation By Executive. Executive may voluntarily resign Executive’s
position with Company at any time on thirty (30) days advance written notice. The Company shall
have the option, in its sole discretion, to make Executive’s termination effective at any time
prior to the end of such notice period as long as the Company pays Executive’s Base Salary through
the last day of the thirty (30) day notice period. In the event of Executive’s resignation,
Executive shall be entitled to receive only the Standard Entitlements. All other Company
obligations to Executive pursuant to this Agreement will become automatically terminated and
completely extinguished. In addition, in the event Executive resigns from his employment with the
Company, Executive will not be entitled to receive the Severance Benefits described in paragraph
7.2 above.

          7.4. Termination of Executive Following Change In Control.

               (a) Severance Pay. If Executive’s employment is terminated by Company without Cause
or by Executive for Good Reason (as that term is defined below) within one year after a Change in
Control (as that term is defined below), Executive shall be entitled to receive the Standard
Entitlements. In addition, Executive also shall receive (i) the Severance Pay described in
subparagraph 7.2(a) above, and (ii) full accelerated vesting of all stock options, provided
Executive complies with the conditions set forth in subparagraph 7.2(x)-(z) above. All other
Company obligations to Executive pursuant to this Agreement will become automatically terminated
and completely extinguished as of the date of termination.

               (b) Good Reason. Executive’s termination shall be for “Good Reason” if Executive
provides written notice to Company of the Good Reason within six (6) months of the event
constituting Good Reason and provides Company with a period of twenty (20) days to cure the Good
Reason and Company fails to cure the Good Reason within that period. For purposes of this
Agreement, “Good Reason” shall mean any of the following events if (i) the event is effected by
Company without the consent of Executive and (ii) such event occurs after a Change in
Control (as hereinafter defined): (A) a change in Executive’s position with Company which
materially reduces Executive’s level of responsibility; (B) a material reduction in Executive’s
Base Salary, except for reductions that are comparable to reductions generally applicable to
similarly situated executives of Company; or (C) a relocation of Executive’s principal place of
employment by more than fifty (50) miles.

               (c) 280G. If, due to the benefits provided under subparagraph 7.4(a) above and/or any
other benefits, Executive is subject to any excise tax due to characterization of any amounts
payable under subparagraph 7.4(a) and/or any other benefits as excess parachute payments pursuant
to Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), Executive may elect,
in Executive’s sole discretion, to reduce the amounts payable

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under subparagraph 7.4(a) and/or any other benefits in order to avoid any “excess parachute
payment” under Section 280G(b)(1) of the Code.

               (d) Change of Control. A Change of Control is defined as any one of the following
occurrences:

                    (i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934 (the “Exchange Act”)), other than a trustee or other fiduciary holding securities of
Company under an employee benefit plan of Company, becomes the “beneficial owner” (as defined in
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of the securities of
Company representing more than 50% of (a) the outstanding shares of common stock of Company or (b)
the combined voting power of Company’s then-outstanding securities; or

                    (ii) The sale or disposition of all or substantially all of Company’s assets (or any
transaction having similar effect is consummated) other than to an entity of which Company owns at
least 50% of the Voting Stock so long as the sale or disposition is not under duress of Company’s
financial hardship; or

                    (iii) Company is party to a merger or consolidation that results in the holders of voting
securities of Company outstanding immediately prior thereto failing to continue to represent
(either by remaining outstanding or by being converted into voting securities of the surviving
entity) less than 50% of the combined voting power of the voting securities of Company or such
surviving entity outstanding immediately after such merger or consolidation.

     8. Competitive Employment. During the term of Executive’s employment with Company,
and during any period during which Executive is receiving Severance Pay or Severance Benefits from
Company (pursuant to Sections 7.2 or 7.4(a)), Executive agrees that Executive will not directly or
indirectly compete with Company in any way, and will not act as an officer, director, executive,
consultant, shareholder, volunteer, lender, or agent of any business enterprise of the same nature
as, or which is in direct competition with, the business in which Company is now engaged or in
which Company becomes engaged during the term of Executive’s employment with Company, as may be
determined by Company in its sole discretion. Further, Executive agrees not to refer any client or
potential client to competitors of Company without Company’s written consent during the term of
Executive’s employment with Company or during any period in which Executive is receiving Severance
Pay or Severance Benefits from Company (pursuant to Section 7.2 or 7.4(a)).

     9. Confidentiality and Proprietary Rights. Executive agrees to abide by Company’s
Proprietary Rights policies and to protect the intellectual property of Company In accordance,
Executive has signed, contemporaneously with the execution of this Agreement, a Confidential
Information and Invention Assignment Agreement, which is incorporated herein by this reference.

     10. Non-Solicitation.

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          10.1. Non-Solicitation of Employees and Independent Contractors. Executive agrees
that during Executive’s employment with Company and for a period of one year after the termination
of Executive’s employment with Company for any reason, Executive will not directly or indirectly,
separately or in association with others, interfere with, impair, disrupt or damage Company’s
relationship with any employee or independent contractor; solicit or encourage any of Company’s
employees or independent contractors to discontinue their employment or services with Company; or
cause others to solicit or encourage any of Company’s employees or independent contractors to
discontinue their employment or services with Company.

          10.2. Non-Solicitation of Customers. Executive acknowledges that proprietary
information about Company’s customers is confidential and constitutes trade secrets of Company.
Executive agrees that during Executive’s employment with Company and for a period of one year
following the termination of Executive’s employment with Company, Executive will not, either
directly or indirectly, separately or in association with others, do any of the following: (i) make
known, to any person, firm or corporation, the names and addresses of any of the customers of
Company or contacts of Company within the biotech industry or any other information pertaining to
such persons; (ii) call on, solicit, take away, or attempt to call on, solicit or take away any of
the customers of Company on whom Executive called or with whom Executive became aware or acquainted
during Executive’s association with Company, whether for Executive or for any other person, firm or
corporation; or (iii) use or make known to any person or entity, the strategies, tactics,
practices, and procedures by which Company does business.

     11. Injunctive Relief. Executive acknowledges that Executive’s breach of the
covenants contained in paragraphs 9-10 (collectively “Covenants”) would cause irreparable injury to
Company and agrees that in the event of any such breach, Company shall be entitled to seek
temporary, preliminary and permanent injunctive relief without the necessity of proving actual
damages or posting any bond or other security, in addition to whatever remedies it may have in law,
in equity, or otherwise.

     12. Return of Company Property. On termination of employment with Company for
whatever reason, or at the request of Company before termination, Executive agrees to promptly
deliver to Company all records, files, computer disks, memoranda, documents, lists and other
information regarding or containing any Proprietary Information (as defined in the Confidential
Information and Invention Assignment Agreement executed herewith), including all copies,
reproductions, summaries or excerpts thereof, then in Executive’s possession or control, whether
prepared by Executive or others. Executive also agrees to promptly return, upon termination or at
any time upon Company’s request, any and all Company property issued to Executive, including but
not limited to computers, facsimile transmission equipment, cellular phones, keys and credits
cards. Executive further agrees that should Executive discover any Company property or Proprietary
Information in Executive possession after Executive’s termination and departure from Company,
Executive agrees to return it promptly to Company without retaining copies or excerpts of any kind.

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     13. No Violation of Rights of Third Parties. Executive warrants that Executive’s
performance of all the terms of this Agreement does not and will not breach any agreement to keep
in confidence proprietary information, knowledge or data acquired by Executive prior to Executive’s
employment with Company. Executive agrees not to disclose to Company, or induce Company to use,
any confidential or proprietary information or material belonging to any previous employers or
others. Executive warrants that Executive is not a party to any other agreement that will
interfere with Executive’s full compliance with this Agreement. Executive further agrees not to
enter into any agreement, whether written or oral, in conflict with the provisions of this
Agreement.

     14. Agreement to Arbitrate. Executive agrees to sign and be bound by the terms of the
Company’s Arbitration Agreement, which is incorporated herein by this reference.

     15. General Provisions.

          15.1. Successors and Assigns. The rights and obligations of Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of
Company. Executive shall not be entitled to assign any of Executive’s rights or obligations under
this Agreement.

          15.2. Waiver. Either party’s failure to enforce any provision of this Agreement shall
not in any way be construed as a waiver of any such provision, or prevent that party thereafter
from enforcing each and every other provision of this Agreement.

          15.3. Severability. In the event any provision of this Agreement is found to be
unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed
modified to the extent necessary to allow enforceability of the provision as so limited, it being
intended that the parties shall receive the benefit contemplated herein to the fullest extent
permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator
or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability
of the remaining provisions shall not be affected thereby.

          15.4. Interpretation; Construction. The headings set forth in this Agreement are for
convenience only and shall not be used in interpreting this Agreement. This Agreement has been
drafted by legal counsel representing Company, but Executive has participated in the negotiation of
its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and
revise the Agreement and have it reviewed by legal counsel, if desired, and, therefore, the normal
rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement.

          15.5. Governing Law. This Agreement will be governed by and construed in accordance
with the laws of the United States and the State of California.

          15.6. Notices. Any notice required or permitted by this Agreement shall be in writing
and shall be delivered as follows with notice deemed given as indicated: (a) by personal delivery
when delivered personally; (b) by overnight courier upon written verification of receipt; (c) by
telecopy or facsimile transmission upon acknowledgment of receipt of electronic

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transmission; or (d) by certified or registered mail, return receipt requested, upon verification
of receipt. Notice shall be sent to the addresses set forth below, or such other address as either
party may specify in writing.

          15.7. Survival. Paragraphs 8 (“Competitive Employment”), 9 (“Confidentiality and
Proprietary Rights”), 10 (“Non-Solicitation”), 11 (“Injunctive Relief”), 12 (“Return of Company
Property”) 14 (“Agreement to Arbitrate”), 15 (“General Provisions”) and 16 (“Entire Agreement”) of
this Agreement shall survive Executive’s employment by Company.

          15.8. Taxes. All amounts paid under this Agreement shall be paid less all applicable
state and federal tax withholdings (if any) and any other withholdings required by any applicable
jurisdiction or authorized by Executive. Notwithstanding any other provision of this Agreement
whatsoever, the Company, in its sole discretion, shall have the right to provide for the
application and effects of Section 409A of the Code (relating to deferred compensation
arrangements) and any related administrative guidance issued by the Internal Revenue Service. The
Company shall have the authority to delay the payment of any amounts under this Agreement to the
extent it deems necessary or appropriate to comply with Section 409A(a)(2)(B)(i) of the Code
(relating to payments made to certain “key employees” of publicly-traded companies); in such event,
the payment(s) at issue may not be made before the date which is six (6) months after the date of
Executive’s separation from service, or, if earlier, the date of death.

     16. Entire Agreement. This Agreement, including Company’s Confidential Information
and Invention Assignment Agreement herein incorporated by reference, constitutes the entire
agreement between the parties relating to this subject matter and supersedes all prior or
simultaneous representations, discussions, negotiations, and agreements, whether written or oral.
This Agreement may be amended or modified only with the written consent of Executive and the Board
of Directors of Company. No oral waiver, amendment or modification will be effective under any
circumstances whatsoever.

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THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY
PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN
BELOW.

	 	 	 	 	 
	Dated: December 19, 2007 	/s/
Edward Solomon 	 
	 	Edward Solomon
 	 
	 	 	 
	Dated: December 19, 2007 	By:  	/s/
Lynda Wijcik	 
	 	 	Lynda Wijcik 	 
	 	 	Chairman
NovaRay Inc.exv10w4

 

Exhibit 10.4

CONSULTING AGREEMENT

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

WITNESSETH:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     4. Term and Termination; Survival.

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

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

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

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

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

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

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

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

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

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

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

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

	 	 	 
	          If to Company:

	 	Copy to:
	 
	 	 
	          NovaRay, Inc.

	 	Morrison & Foerster LLP
	          1850 Embarcadero Road

	 	755 Page Mill Road
	          Palo Alto, CA 94303

	 	Palo Alto, CA 94304
	          Attention: Marc C. Whyte

	 	Facsimile: (650) 494-0792
	 

	 	Attention: Michael C. Phillips
	 
	 	 
	          If to the Consultant:

	 	Copy to:
	 
	 	 
	          Fountainhead Capital Partners Limited

	 	Law Offices of Robert Diener
	          Portman House

	 	122 Ocean Park Boulevard
	          Hue Street, St. Helier

	 	Suite 307
Santa Monica, California 90405

-4-

 

	 	 	 
	          Jersey JE4 5RP

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

	 	 

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

     12. Miscellaneous.

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

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

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

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

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

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

-5-

 

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

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

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

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

(signatures follow)

-6-

 

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

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fountainhead Capital Partners Limited	 	NovaRay, Inc.
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:

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

	 	Name:
	 	Carol Dodge	 	 	 	 	 	 	 	Name:
	 	Marc C. Whyte
	 

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

	 	Name:	 	Eileen O’Shea	 	 	 	 	 	 	 	 	 	 
	 

	 	Title:
	 	Director
	 	 	 	 	 	 	 	 

-7-

 

AMENDMENT NO. 1 TO CONSULTING AGREEMENT

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

RECITALS

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

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

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

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

AMENDMENT

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

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

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

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

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

 

 

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

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

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

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

 

 

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

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fountainhead Capital Partners Limited	 	NovaRay, Inc.
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:

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

	 	Name:
	 	Gisele Le Miere	 	 	 	 	 	 	 	Name:
	 	Marc C. Whyte
	 

	 	Title:
	 	Director

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

	 	Name:	 	Eileen O’Shea	 	 	 	 	 	 	 	 	 	 
	 

	 	Title:
	 	Director

	 	 	 	 	 	 	 	 

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

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