Document:

Warrant to Purchase Shares of Common Stock

 Exhibit 10.3 
 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF 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 ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED. 
 WARRANT TO PURCHASE

 SHARES OF COMMON STOCK 
 OF

 NOVARAY MEDICAL, INC. 
 Expires:
July 2, 2014 
 No.: W-B-09-01  
 Date of Issuance:
July 2, 2009 
 FOR VALUE RECEIVED, the undersigned, NOVARAY MEDICAL, INC., a Delaware corporation (together with its successors and
assigns, the “Issuer”), hereby certifies that VISION OPPORTUNITY MASTER FUND LTD. or its registered assigns is entitled to subscribe for and purchase, during the Term (as hereinafter defined), up to the greater of
(a) One Million Five Hundred Thousand (1,500,000) or (b) one hundred percent (100%) of that number of shares of the Company’s Common Stock into which the Note (as defined in the Purchase Agreement) issued to the applicable
purchaser converts or if such Note converts into Conversion Securities (as defined in the Purchase Agreement), the initial principal amount of such Note divided by the per unit price of the Conversion Securities (subject to adjustment as hereinafter
provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the provisions and upon the terms and
conditions hereinafter set forth. Capitalized terms used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 8 hereof. 
 1. Term. The term of this Warrant shall commence on the date hereof and shall expire at 6:00 p.m., Eastern Time, on July 2, 2014
(such period being the “Term”). 
 2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
Exchange. 
 (a) Time of Exercise. The purchase rights represented by this Warrant may be exercised in whole or in part
during the Term. 

 (b) Method of Exercise. The Holder hereof may exercise this Warrant, in whole or in part, by the
surrender of this Warrant (with the exercise form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration therefor equal to the Warrant Price in effect on the date of such
exercise multiplied by the number of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder’s election (i) by certified or official bank check or by wire transfer to an account designated
by the Issuer, (ii) by “cashless exercise” in accordance with the provisions of subsection (c) of this Section 2, or (iii) by a combination of the foregoing methods of payment selected by the
Holder of this Warrant. 
 (c) Cashless Exercise. Notwithstanding any provisions herein to the contrary and commencing one
(1) year following the Original Issue Date if the Per Share Market Value of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below), the Holder may exercise this Warrant by a cashless exercise
and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed Notice of Exercise in which event the Issuer shall
issue to the Holder a number of shares of Common Stock computed using the following formula: 
  

									
		 	X =	 	Y	 	-	 	(A)(Y)
		 		 		 		 	     B
			
	Where	 	X =	 	 the number of shares of Common Stock to be issued to the Holder.

			
		 	Y =	 	 the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being exercised.

			
		 	A =	 	 the Warrant Price.

			
		 	B =	 	 the Per Share Market Value of one share of Common Stock.

 (d) Issuance of Stock Certificates. In the event of any exercise of this Warrant in
accordance with and subject to the terms and conditions hereof, certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding three
(3) Trading Days after such exercise (the “Delivery Date”) or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the Warrant Stock is then in effect
and the Holder so requests in writing of the Issuer), issued and delivered to the Depository Trust Company (“DTC”) account on the Holder’s behalf via the Deposit Withdrawal Agent Commission System
(“DWAC”) within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the holder of the shares of Warrant Stock so purchased as of the
date of such exercise. Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holder’s behalf via DWAC if the Issuer and its transfer agent are
participating in 

 
DTC through the DWAC system. The Holder shall deliver this original Warrant, or an indemnification undertaking in a form reasonably satisfactory to the
Issuer with respect to such Warrant in the case of its loss, theft or destruction, at such time that this Warrant is fully exercised. With respect to partial exercises of this Warrant, the Issuer shall keep written records for the Holder of the
number of shares of Warrant Stock exercised as of each date of exercise. 
 (e) Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Stock pursuant to an exercise
on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Stock which
the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Issuer shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions,
if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Warrant Stock that the Issuer was required to deliver to the Holder in connection with the exercise at issue
times (B) the Warrant Price, as may be adjusted in accordance with this Warrant, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of shares of Warrant Stock for which such
exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Issuer timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of the Warrant for shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Issuer shall be required to pay the Holder $1,000. The Holder shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations
and other evidence reasonably requested by the Issuer. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Issuer’s failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof. 
 (f) Transferability/Exchangeability of Warrant. Subject to Section 2(h) hereof, this Warrant may be transferred by a
Holder, in whole or in part, without the consent of the Issuer. If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. This
Warrant is exchangeable at the principal office of the Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder
hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant
thereto. 

 (g) Continuing Rights of Holder. The Issuer will, at the time of or at any time after each
exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled after such exercise in
accordance with the terms of this Warrant; provided that if any such Holder shall fail to make, or the Issuer shall fail to honor, any such request, the failure shall not affect the continuing obligation of the Issuer to afford such rights to
such Holder. 
 (h) Compliance with Securities Laws.  
 (i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of Warrant Stock to be issued upon exercise hereof are
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 will not offer, sell or otherwise dispose of this Warrant or any shares of Warrant Stock to be issued upon
exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws. 
 (ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of Warrant Stock issued upon exercise hereof
shall be stamped or imprinted with a legend in substantially the following form: 
 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
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 ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED. 
 (iii) The Issuer agrees to reissue this Warrant or certificates representing any of the Warrant Stock, without the legend
set forth above if at such time, prior to making any transfer of any such securities, the Holder shall give written notice to the Issuer describing the manner and terms of such transfer. Such proposed transfer will not be effected until:
(a) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that the registration of such securities 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 Issuer with the Securities and Exchange Commission and has become effective under the Securities Act, and (b) either
(i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, 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 Issuer will respond to any such notice from a holder within five
(5) Trading Days. In the case of any proposed transfer under this Section 2(h), the Issuer will pay the expenses of and 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, or (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. The restrictions on transfer contained in this Section 2(h) shall be
in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Warrant. Whenever a certificate representing the Warrant Stock is required to be issued to a Holder without a legend, at the
request of the Holder, in lieu of delivering physical certificates representing the Warrant Stock, the Issuer shall cause its transfer agent to electronically transmit the Warrant Stock to the Holder by crediting the account of the Holder’s
Prime Broker with DTC through its DWAC system (to the extent not inconsistent with any provisions of this Warrant or the Purchase Agreement). 
 (i) Accredited Investor Status. In no event may the Holder exercise this Warrant in whole or in part unless the Holder is an “accredited investor” as defined in Regulation D under the Securities Act. 

3. Stock Fully Paid; Reservation and Listing of Shares; Covenants. 
 (a) Stock Fully Paid. The Issuer represents, warrants, covenants and agrees that all shares of Warrant Stock which may be issued upon the
exercise of this Warrant or otherwise hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges. The Issuer further
covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of the issuance upon exercise of this Warrant a number of authorized but unissued
shares of Common Stock equal to at least one hundred ten percent (110%) of the number of shares of Common Stock issuable upon exercise of this Warrant without regard to any limitations on exercise. 
 (b) Reservation. If any shares of Common Stock required to be reserved for issuance upon exercise of this Warrant or as otherwise provided
hereunder require registration or qualification with any Governmental Authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use best efforts as expeditiously as possible at its expense to cause
such shares to be duly registered or qualified. If the Issuer shall list any shares of Common Stock on any securities exchange or market it will, at its expense, list thereon, and maintain and increase when necessary such listing of, all shares of
Warrant Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such Warrant Stock has been registered pursuant to a registration statement under the Securities Act then in effect), and,
to the extent permissible under the applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed. The Issuer will also so list on each
securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on
such securities exchange or market by the Issuer. 
 (c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the Issuer, or through any reorganization, 

 
transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder hereof against
dilution (to the extent specifically provided herein) or impairment. Without limiting the generality of the foregoing, the Issuer will (i) not permit the par value, if any, of its Common Stock to exceed the then effective Warrant Price,
(ii) not amend or modify any provision of the Certificate of Incorporation or by-laws of the Issuer in any manner that would materially and adversely affect the rights of the Holders of the Warrants, (iii) take all such action as may be
reasonably necessary in order that the Issuer may validly and legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of
this Warrant, and (iv) use best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be reasonably necessary to enable the Issuer to perform its obligations under
this Warrant. 
 (d) Loss, Theft, Destruction, Mutilation of Warrants. Upon receipt of evidence satisfactory to the Issuer of the
ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same number of shares of Common Stock.

 (e) Payment of Taxes. The Issuer will pay any documentary stamp taxes attributable to the initial issuance of the Warrant
Stock issuable upon exercise of this Warrant; provided, however, that the Issuer shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates
representing Warrant Stock in a name other than that of the Holder in respect to which such shares are issued. 
 4. Adjustment of
Warrant Price and Number of Shares Issuable Upon Exercise. The Warrant Price and the number of shares of Warrant Stock that may be purchased upon exercise of this Warrant shall be subject to adjustment from time to time as set forth in this
Section 4. The Issuer shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set forth in
Section 5. 
 (a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale.

 (i) In case the Issuer after the Original Issue Date shall do any of the following (each, a “Triggering Event”):
(a) consolidate or merge with or into any other Person and the Issuer shall not be the continuing or surviving Person of such consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the
Issuer shall be the continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash or any other property, or
(c) transfer all or substantially all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock, then, and in the case of 

 
each such Triggering Event, proper provision shall be made to the Warrant Price and the number of shares of Warrant Stock that may be purchased upon exercise
of this Warrant so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof at any time after the consummation of such Triggering Event, to the extent this
Warrant is not exercised prior to such Triggering Event, to receive at the Warrant Price as adjusted to take into account the consummation of such Triggering Event, in lieu of the Common Stock issuable upon such exercise of this Warrant prior to
such Triggering Event, the Securities, cash and property to which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights represented by this Warrant immediately prior thereto
(including the right of a shareholder to elect the type of consideration it will receive upon a Triggering Event), subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for
elsewhere in this Section 4. Immediately upon the occurrence of a Triggering Event, the Issuer shall notify the Holder in writing of such Triggering Event and provide the calculations in determining the number of shares of Warrant
Stock issuable upon exercise of the new warrant and the adjusted Warrant Price. Upon the Holder’s request, the continuing or surviving Person as a result of such Triggering Event shall issue to the Holder a new warrant of like tenor evidencing
the right to purchase the adjusted number of shares of Warrant Stock and the adjusted Warrant Price pursuant to the terms and provisions of this Section 4(a)(i). Notwithstanding the foregoing to the contrary, this
Section 4(a)(i) shall only apply if the surviving entity pursuant to any such Triggering Event has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed
or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board. In the event that the surviving entity pursuant to any such Triggering Event is not a public company that is registered pursuant to the
Securities Exchange Act of 1934, as amended, or its common stock is not listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, then the Holder shall have the right to demand that the Issuer
pay to the Holder an amount in cash equal to the value of this Warrant calculated in accordance with the Black-Scholes formula. 
 (ii) In
the event that the Holder has elected not to exercise this Warrant prior to the consummation of a Triggering Event, so long as the surviving entity pursuant to any Triggering Event is a company that has a class of equity securities registered
pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, the surviving entity and/or each Person (other
than the Issuer) which may be required to deliver any shares of Warrant Stock (including all Securities, cash or property) upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such assumption shall be in addition to, and shall not release the
Issuer from, any continuing obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such Holder such Securities, cash or property as, in accordance with the foregoing provisions of this subsection (a).

 (b) Stock Dividends, Subdivisions and Combinations. If at any time the Issuer shall:

 (i) make or issue or set a record date for the holders of the Common Stock for the purpose of entitling them to receive a dividend payable
in, or other distribution of, shares of Common Stock, 
 (ii) subdivide its outstanding shares of Common Stock into a larger number of shares
of Common Stock, or 
 (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then
(1) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares
of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal
(A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is
exercisable immediately after such adjustment. 
 (c) Certain Other Distributions. If at any time the Issuer shall make or issue
or set a record date for the holders of the Common Stock for the purpose of entitling them to receive any dividend or other distribution of: 
 (i) cash, 
 (ii) any evidences of its indebtedness, any shares of stock of any class or any other Securities or property of any
nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock), or 
 (iii) any warrants or other rights
to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock), then
(1) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied
by a fraction (A) the numerator of which shall be the Per Share Market Value of Common Stock at the date of taking such record and (B) the denominator of which shall be such Per Share Market Value minus the amount allocable to one share of
Common Stock of any such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Issuer of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or
other subscription or purchase rights so distributable, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par
value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the 

 
Issuer to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4(c) and, if the
outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares
of Common Stock within the meaning of Section 4(b). 
 (d) Warrant Price Adjustments. The Warrant Price shall
be subject to adjustment from time to time as follows: 
 (i) (A) If the Issuer shall issue, after July 2, 2009 (the
“Purchase Date”), any Additional Shares of Common Stock (as defined below) without consideration or for a consideration per share less than the Warrant Price in effect immediately prior to the issuance of such Additional
Shares of Common Stock, the Warrant Price for this Warrant in effect immediately prior to each such issuance shall (except as otherwise provided in this Section 4(d)(i)) be adjusted concurrently with such issuance to a price determined by
multiplying such Warrant Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding and deemed issued pursuant to Section 4(d)(i)(E) immediately prior to such issuance plus the number of shares of
Common Stock that the aggregate consideration received by this Issuer for such issuance would purchase at such Warrant Price; and the denominator of which shall be the number of shares of Common Stock outstanding and deemed issued pursuant to
Section 4(d)(i)(E) immediately prior to such issuance plus the number of shares of such Additional Shares of Common Stock. 
 (B) No
adjustment of the Warrant Price pursuant to this Section 4(d) shall be made in an amount less than one cent per share, provided that any adjustments that are not required to be made by reason of this sentence shall be carried forward and shall
be either taken into account in any subsequent adjustment made prior to one (1) year from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of one (1) year from the date of the event
giving rise to the adjustment being carried forward. Except to the limited extent provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no adjustment of such Warrant Price pursuant to this Section 4(d)(i) shall have the effect of
increasing the Warrant Price above the Warrant Price in effect immediately prior to such adjustment. 
 (C) For purposes of this
Section 4(d)(i), in the case of the issuance of Additional Shares of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this Issuer for any underwriting or otherwise in connection with the issuance and sale thereof. 
 (D) For
purposes of this Section 4(d)(i), in the case of the issuance of the Additional Shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board irrespective of any accounting treatment. 

 (E) In the case of the issuance (whether before, on or after the Purchase Date) of Common Stock
Equivalents, the following provisions shall apply for all purposes of this Section 4(d)(i): 
 (1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including, without limitation, the passage of time, of such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 4(d)(i)(C) and 4(d)(i)(D)), if any, received by this Issuer upon the issuance
of such options or rights plus the minimum exercise price provided in such options or rights for the Common Stock covered thereby. 
 (2) The
aggregate maximum number of shares of Common Stock deliverable upon conversion of, or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, for any such
convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Issuer for any such securities and related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Issuer upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each
case to be determined in the manner provided in Sections 4(d)(i)(C) and 4(d)(i)(D)). 
 (3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the Issuer upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Warrant Price, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. 
 (4) Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the
Warrant Price, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities.

 (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Sections 4(d)(i)(E)(1)
and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 4(d)(i)(E)(3) or 4(d)(i)(E)(4). 

 (ii) Termination. Notwithstanding anything else contained herein, the right to any adjustments to
the Warrant Price pursuant to this Section 4(d) shall terminate upon the earlier of: (i) the expiration of the Term; or (ii) the occurrence of a Triggering Event. In addition, no adjustment to the Warrant Price shall be made for all
or any portion of this Warrant that is exercised prior to any issuance of Additional Shares of Common Stock that would require an adjustment pursuant to this Section 4(d). 
 (e) Other Provisions applicable to Adjustments under this Section. The following provisions shall be applicable to the making of adjustments
of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect provided for in this Section 4: 
 (i) Computation of Consideration. Except as otherwise provided, to the extent that any Additional Shares of Common Stock or any Common Stock Equivalents (or any warrants or other rights therefor) shall be
issued for cash consideration, the consideration received by the Issuer therefor shall be the amount of the cash received by the Issuer therefor, or, if such Additional Shares of Common Stock or Common Stock Equivalents are offered by the Issuer for
subscription, the subscription price, or, if such Additional Shares of Common Stock or Common Stock Equivalents are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Issuer for and in the underwriting of, or otherwise in
connection with, the issuance thereof). In connection with any merger or consolidation in which the Issuer is the surviving Person (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Issuer shall
be changed to or exchanged for the stock or other securities of another Person), the amount of consideration therefore shall be, deemed to be the fair value, as determined reasonably and in good faith by the Board, of such portion of the assets and
business of the nonsurviving Person as the Board may determine to be attributable to such shares of Common Stock or Common Stock Equivalents, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any
warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Issuer for issuing such warrants or other rights plus the additional consideration payable to the Issuer upon exercise of such warrants or
other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Common Stock Equivalents shall be the consideration received by the Issuer for issuing warrants or other rights to subscribe for or
purchase such Common Stock Equivalents, plus the consideration paid or payable to the Issuer in respect of the subscription for or purchase of such Common Stock Equivalents, plus the additional consideration, if any, payable to the Issuer upon the
exercise of the right of conversion or exchange in such Common Stock Equivalents. In the event of any consolidation or merger of the Issuer in which the Issuer is not the surviving Person or in which the previously outstanding shares of Common Stock
of the Issuer shall be changed into or exchanged for the stock or other securities of another Person, or in the event of any sale of all or substantially all of the assets of the Issuer for stock or other securities of any Person, the 

 
Issuer shall be deemed to have issued a number of shares of its Common Stock for stock or securities or other property of the other Person 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 Person. In the event
any consideration received by the Issuer for any securities consists of property other than cash, the fair market value thereof at the time of issuance or as otherwise applicable shall be as determined in good faith by the Board. In the event Common
Stock is issued with other shares or securities or other assets of the Issuer for consideration which covers both, the consideration computed as provided in this Section 4(e)(i) shall be allocated among such securities and assets
as determined in good faith by the Board. 
 (ii) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would
otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by
itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment
representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made (x) as soon as such adjustment, together with other adjustments required by this Section 4 and
not previously made, would result in a minimum adjustment, or (y) on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.

 (iii) Fractional Interests. In computing adjustments under this Section 4, fractional
interests in Common Stock shall be taken into account to the nearest one one-hundredth ( 1/100th) of a share. 
 (iv) When Adjustment Not Required. If the Issuer shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter
and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and
any such adjustment previously made in respect thereof shall be rescinded and annulled. 
 (h) Form of Warrant after Adjustments.
The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant. 
 (i) Escrow of Warrant Stock. If after any property becomes distributable pursuant to this Section 4 by reason of the
taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any shares of Common Stock issuable upon exercise by reason of such adjustment shall
be 

 
deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or
other property shall be held in escrow for the Holder by the Issuer to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the current Warrant Price. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Issuer and escrowed property returned. 
 5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to Section 4
hereof (for purposes of this Section 5, each an “Adjustment”), the Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth, in reasonable detail, the event
requiring the Adjustment, the amount of the Adjustment, the method by which such Adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number
after giving effect to such Adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each Adjustment. Any dispute between the Issuer and the Holder of this Warrant with respect to the
matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to an Independent Appraiser mutually selected by the Holder and the Issuer. The Independent Appraiser shall be instructed to deliver a written opinion
as to such matters to the Issuer and such Holder within thirty (30) days after submission to it of such dispute. Such opinion shall be final and binding on the parties hereto. The costs and expenses of the initial firm selected as Independent
Appraiser shall be paid equally by the Issuer and the Holder. 
 6. Fractional Shares. No fractional shares of Warrant
Stock will be issued in connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall round the number of shares to be issued upon exercise down to the nearest whole number of shares. 
 7. Ownership Cap and Exercise Restriction. Notwithstanding anything to the contrary set forth in this Warrant, at no time may a Holder
of this Warrant exercise this Warrant if the number of shares of Common Stock to be issued pursuant to such exercise would exceed, when aggregated with all other shares of Common Stock owned by such Holder and affiliates at such time, the number of
shares of Common Stock which would result in such Holder and affiliates beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 4.99% of the then issued and outstanding
shares of Common Stock; provided, however, that upon a holder of this Warrant providing the Issuer with sixty-one (61) days notice (pursuant to Section 12 hereof) (the “Waiver Notice”)
that such Holder would like to waive this Section 7 with regard to any or all shares of Common Stock issuable upon exercise of this Warrant, this Section 7 will be of no force or effect with regard to all or a
portion of the Warrant referenced in the Waiver Notice; provided, further, that during the sixty-one (61) day period prior to the Expiration Date of this Warrant the Holder may waive this Section 7 upon providing the Waiver
Notice at any time during such sixty-one (61) day period, provided, further, that any Waiver Notice during the sixty-one (61) day period prior to the Expiration Date will not be effective until the Expiration Date.

 8. Definitions. For the purposes of this Warrant, the following terms have the
following meanings: 
 “Additional Shares of Common Stock” means any shares of Common Stock issued (or deemed to have
been issued pursuant to Section 4(d)(i)(E)) by this Issuer after the Purchase Date other than: (a) shares of Common Stock issued pursuant to a transaction described in Section 4(c) hereof; (b) 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 this Issuer directly or
pursuant to a stock option plan or restricted stock purchase plan approved by the Board; (c) 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 Preferred Shares 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; (d) shares of Common
Stock issued pursuant to the conversion or exercise of convertible or exercisable securities outstanding as of the Purchase Date or subsequently issued after the Purchase Date in accordance with this definition or pursuant to the Purchase Agreement;
(e) shares of Common Stock issued or issuable in connection with a bona fide business acquisition of or by the Issuer, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, each as approved by the Board;
(f) 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; (g) 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 Majority Holders; or (h) 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 Issuer. 
 “Board” shall mean the Board of Directors of the Issuer. 
 “Capital
Stock” means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock,
(ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type. 
 “Certificate of Incorporation” means the Certificate of Incorporation
of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law. 
 “Common Stock” means the Common Stock of the Issuer, par value $0.0001 per share, and any other Capital Stock into which such
stock may hereafter be changed. 

 “Common Stock Equivalent” means any Convertible Security or warrant, option or
other right to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Security. 
 “Conversion
Price” means $2.67 per share, as may be adjusted in accordance with the Certificate of Designations for the Preferred Stock, filed with the Delaware Secretary of State in accordance with the terms of the Purchase Agreement. 

“Convertible Securities” means evidences of indebtedness, shares of Capital Stock or other Securities which are or may be at
any time convertible into or exchangeable for Additional Shares of Common Stock. The term “Convertible Security” means one of the Convertible Securities. 
 “Delivery Date” shall be the date not exceeding three (3) Trading Days after an exercise of this Warrant. 
 “DTC” means the Depository Trust Company. 
 “DWAC” means the Deposit Withdrawal Agent Commission System. 
 “Expiration Date” means July 2, 2014. 
 “Governmental Authority” means any
governmental, regulatory or self-regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign. 
 “Holders” mean the Persons who shall from time to time own any Warrant. The term “Holder” means one of the Holders.

 “Independent Appraiser” means a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of
corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant. 
 “Issuer” means NovaRay Medical, Inc., a Delaware corporation, and its successors. 
 “Majority
Holders” means at any time the Holders of Warrants exercisable for a majority of the shares of Warrant Stock issuable under the Warrants at the time outstanding. 
 “Original Issue Date” means the date this Warrant is issued to the Holder as set forth above. 
 “OTC Bulletin Board” means the over-the-counter electronic bulletin board. 

 “Other Common” means any other Capital Stock of the Issuer of any class which
shall be authorized at any time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount. 
 “Outstanding Common Stock” means, at any given time, the aggregate amount of outstanding shares of Common Stock, assuming full
exercise, conversion or exchange (as applicable) of all options, warrants and other Securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that are outstanding at such time.

 “Person” means an individual, corporation, limited liability company, partnership, joint stock company, trust,
unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature. 
 “Per Share Market
Value” means on any particular date (a) 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 closing bid price on such exchange or quotation system on the date nearest preceding such date, or (b) if the Common Stock is not listed then on the OTC Bulletin Board or any registered national
stock exchange, the last closing bid 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 (c) 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 “Pink Sheet” quotes for the applicable Trading Days preceding such date of determination, or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock
as determined by an Independent Appraiser selected in good faith by the Majority Holders; provided, however, that the Issuer, after receipt of the determination by such Independent Appraiser, shall have the right to select an additional
Independent Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and provided, further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period. The determination of fair market value by an Independent Appraiser shall be based upon the fair market value of the Issuer determined on a
going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties. In determining the fair market value of any shares of Common
Stock, no consideration shall be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights. 
 “Preferred Stock” means shares of the Issuer’s Series A-1 Convertible Preferred Stock, par value $0.0001 per share.

 “Purchase Agreement” means the Note and Warrant Agreement dated as of
July 2, 2009, among the Issuer and the Purchasers (as defined therein). 
 “Securities” means any debt or equity
securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security. “Security” means one
of the Securities. 
 “Securities Act” means the Securities Act of 1933, as amended, or any similar federal statute
then in effect. 
 “Subsidiary” means any corporation at least 50% of whose outstanding Voting Stock shall at the
time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries. 
 “Term” has the meaning specified in Section 1 hereof. 
 “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. 
 “Voting Stock” means, as applied to the Capital Stock of any corporation, Capital Stock of any
class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Capital Stock having such power only by reason of
the happening of a contingency. 
 “Warrants” means the Warrants issued pursuant to the Purchase Agreement,
including, without limitation, this Warrant, and any other warrants of like tenor issued in substitution or exchange for any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants.

 “Warrant Price” initially means the lesser of (i) $2.67 or (ii) the Conversion Price after the issuance
of Conversion Securities (as defined in the Purchase Agreement), as such price may be adjusted from time to time as shall result from the adjustments specified in this Warrant, including Section 4 hereto. 
 “Warrant Share Number” means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased upon
exercise of this Warrant, after giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof. 

 “Warrant Stock” means Common Stock issuable upon exercise of any Warrant or
Warrants or otherwise issuable pursuant to any Warrant or Warrants and/or Securities, cash and property to which such Holder would have been entitled upon the occurrence of certain events set forth in Section 4. 
 9. Other Notices. In case at any time: 
  

	 	(A)	the Issuer shall make any distributions to the holders of Common Stock; or 

  

	 	(B)	the Issuer shall authorize the granting to all holders of its Common Stock of rights to subscribe for or purchase any shares of Capital Stock of any class or other rights; or

  

	 	(C)	there shall be any reclassification of the Capital Stock of the Issuer; or 

  

	 	(D)	there shall be any capital reorganization by the Issuer; or 

  

	 	(E)	there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer’s property,
assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Capital Stock shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or
other disposition involving a wholly-owned Subsidiary); or 

  

	 	(F)	there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Stock;

 then, in each of such cases, the Issuer shall give written notice to the Holder of the date on which (i) the books of the Issuer shall
close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take
place. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given at least twenty (20) days prior to
the action in question and not less than ten (10) days prior to the record date or the date on which the Issuer’s transfer books are closed in respect thereto. This Warrant entitles the Holder to receive copies of all financial and other
information distributed or required to be distributed to the holders of the Common Stock. 
 10. Amendment and Waiver; Failure or
Indulgence Not Waiver. Any term, covenant, agreement or condition in this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written
instrument or written instruments executed by the Issuer and the Majority Holders; provided, however, that no such amendment or waiver shall reduce the Warrant Share Number, increase the Warrant Price (except as provided herein), shorten the
period during which this Warrant may be exercised or modify any provision of this Section 10 without the consent of the Holder of this Warrant. 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. 
 11. Governing Law; Jurisdiction. This Warrant 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 Warrant shall not be interpreted or construed with any presumption against the party causing this Warrant to be drafted. The Issuer and the Holder agree that venue for
any dispute arising under this Warrant will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is
not the proper venue. The Issuer and the Holder irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Issuer and the Holder consent 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 Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this
Section 11 shall affect or limit any right to serve process in any other manner permitted by law. The Issuer and the Holder hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to
this Warrant or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties hereby waive all rights to a trial by jury. 
 12. 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 by telecopy or 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 Issuer:	  	NovaRay Medical, Inc.
		  	39655 Eureka Drive
		  	Newark, CA 94560
		  	Attention: Chief Financial Officer
		  	Tel. No.: (510) 619-9200
		  	Fax No.: (510) 291-3001
		
	with copies (which copies shall not constitute notice) to:	  	Morrison & Foerster, LLP
		  	755 Page Mill Road
		  	Palo Alto, California 94304-1018
		  	Attn: Michael C. Phillips
		  	Facsimile: (650) 494-0792

			
	If to any Holder:	  	At the address of such Holder set forth on Exhibit A to the Purchase Agreement, with copies to Holder’s counsel as set forth on Exhibit A or as
specified in writing by such Holder

 Any party hereto may from time to time change its address for notices by giving written notice of
such changed address to the other party hereto. 
 13. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent for the purpose of replacing this Warrant pursuant to Section 3(d) hereof, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent. 
 14. Remedies. The Issuer stipulates that the remedies at law of the Holder of this Warrant
in the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be
specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 
 15. Successors and Assigns. This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the
successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Stock. 
 16. Modification and Severability. If, in any action before any court or agency legally empowered to enforce any provision contained
herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein. 
 17. Headings. The headings of the Sections of this Warrant are for convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant. 
 18. Enforcement Expenses. If any action at law or in equity is necessary to enforce or
interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 
 19. Binding Effect. The obligations of the Issuer 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 Issuer 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 Issuer may terminate this Warrant upon written notice to Holder. 
 [remainder of page intentionally left blank] 

 IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and year first above written. 
  

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

	Name:	 	Marc C. Whyte
	Title:	 	Chief Executive Officer

 EXERCISE FORM 
 WARRANT 
 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:                      
 The undersigned
is an “accredited investor” as defined in Regulation D under the Securities Act of 1933, as amended. 
 The undersigned intends that payment
of the Warrant Price shall be made as (check one): 
 Cash Exercise
             
 Cashless Exercise
             
 If the Holder has elected a Cash Exercise, the Holder shall pay the sum of
$             by certified or official bank check (or via wire transfer) to the Issuer in accordance with the terms of the Warrant. 
 If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole number portion of the product of
the calculation set forth below, which is             . The Issuer shall pay a cash adjustment in respect of the fractional portion of the product of the calculation set forth below in an
amount equal to the product of the fractional portion of such product and the Per Share Market Value on the date of exercise, which product is             . 
 X = Y - (A)(Y)  
                   B 
 Where: 
 The number of shares of Common Stock to be issued to the Holder
                     (“X”). 
 The
number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being
exercised                      (“Y”). 
 The Warrant Price                      (“A”). 
 The Per Share Market Value of one share of Common Stock                      (“B”). 

 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	 	  

				
		 		 		 	  

 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
                    .Security Agreement with Vision Capital Advisors, LLC

 Exhibit 10.4 
 SECURITY AGREEMENT 
 SECURITY AGREEMENT (this “Security Agreement”) dated as
of the 2nd day of July, 2009, by and among NovaRay Medical, Inc. (the “Company” and/or the “Debtor”), and Vision Capital Advisors, LLC, in its capacity as the collateral agent (together with any
successors thereto in such capacity, the “Collateral Agent”) for the benefit of the holders (the “Holders”) of the Notes (as defined below) (the Collateral Agent and the Holders are hereinafter
referred to as the “Secured Parties”). 
 Recitals 
 A. Pursuant to the Note and Warrant Purchase Agreement, dated as of the date hereof (including all annexes, exhibits and schedules thereto, as from time
to time amended, restated, supplemented or otherwise modified, the “Purchase Agreement”), among the Debtor and the Purchasers named therein (the “Purchasers”), the Debtor has agreed to issue, and
subject to the terms thereof, and the Purchasers have agreed to purchase, the Debtor’s Senior Secured 12% convertible bridge notes in the aggregate principal amount of up to $4,250,000 (together with all renewals, extensions and modifications
thereof and any note or notes issued in substitution or exchange therefor, the “Notes”); and 
 B. As a condition to
each of the Purchasers’ obligation to purchase the Notes, the Purchasers have required, and the Debtor has agreed, to execute and deliver this Security Agreement to provide collateral security for the Secured Obligations of the Debtor under the
Purchase Agreement, the Notes, this Security Agreement (hereinafter collectively referred to as the “Note Documents”). 
 Agreement 
 NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 
 1. Defined
Terms. Terms not otherwise defined in this Security Agreement (including Annex A hereto), unless the context indicates otherwise, have the meanings set forth in the Purchase Agreement, or if not defined in the Purchase
Agreement, then as provided for by the Code to the extent the same are used or defined therein. 
 2. Grant Of Lien.

 (a) To secure the prompt and complete payment, performance and observance when due (whether at stated maturity, by acceleration or
otherwise) of all of the Secured Obligations, the Debtor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to the Collateral Agent, for itself and the benefit of the Secured Parties, security interests in all of its
right, title and interest in, to and under all personal property and other assets described below, whether now owned by or owing to, or hereafter acquired by or arising in favor of the Debtor, and whether owned or consigned by or to, or leased from
or to, the Debtor, and regardless of where located (all of which being hereinafter collectively referred to as the “Collateral”): (i) all Accounts; (ii) all General Intangibles; (iii) all goods, including,
without 

 
limitation, Inventory and Equipment; (v) all Chattel Paper; (vi) all Instruments (including all promissory notes); (vii) all documents;
(viii) all Deposit Accounts, including all deposits therein; (ix) all money, cash or cash equivalents of the Debtor; (x) all books and records pertaining to the Collateral; (xi) all investment property (including securities,
whether certificated or uncertificated, securities accounts, security entitlements, commodity contracts or commodity accounts); (xii) all Trademarks, Patents or Copyrights or other Intellectual Property; (xiii) to the extent not otherwise
included, all Proceeds, tort claims, insurance claims and other rights to payments not otherwise included in the foregoing and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the
foregoing. 
 (b) In addition, to secure the prompt and complete payment, performance and observance of the Secured Obligations and in order
to induce the Secured Parties as aforesaid, the Debtor hereby grants to the Collateral Agent, for the benefit of the Secured Parties, a right of setoff against the property of the Debtor held by the Secured Parties, consisting of property described
above in Section 2(a) now or hereafter in the possession or custody of or in transit to the Secured Parties, for any purpose, including safekeeping, collection or pledge, for the account of the Debtor, or as to which the Debtor
may have any right or power. 
 3. Representations and Warranties. Except as set forth in the Schedule of Exceptions (as
defined in the Purchase Agreement), the Debtor represents and warrants, as of the date hereof, that: 
 (a) The Debtor has rights in and the
power to transfer, and is the sole beneficial owner of, each item of the Collateral upon which it purport to grant a Lien hereunder free and clear of any and all Liens other than Permitted Encumbrances. 
 (b) Subject to the pay-off of the Triple Ring and the concomitant release of its lien, which shall be released upon the Closing, no effective security
agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed by the Debtor in favor of
the Collateral Agent pursuant to this Security Agreement or the other Note Documents. 
 (c) This Security Agreement is effective to create a
valid and continuing Lien on and, upon the filing of appropriate financing statements with the governmental offices listed on Schedule I hereto, a perfected Lien in favor of the Collateral Agent, for the benefit of the Secured Parties,
on the Collateral with respect to which a Lien may be perfected by filing pursuant to Article 9 of the Code. As of the Closing, such Lien will be prior to all other Liens, except Permitted Encumbrances and is enforceable as such as against any and
all creditors of and purchasers from the Debtor (other than purchasers of Inventory in the ordinary course of business). 
 (d) The
Debtor’s name as it appears in official filings in the jurisdiction of its incorporation or other organization, the type of entity of the Debtor (including corporation, partnership, limited partnership or limited liability company),
organizational identification number issued by the Debtor’s jurisdiction of incorporation or organization or a statement that no such number has been issued, the Debtor’s jurisdiction of organization or incorporation, the 

  

 2 

 
location of the Debtor’s chief executive office, principal place of business, offices and premises where Collateral is stored or located, and the
locations of its books and records concerning the Collateral are set forth on Schedule II hereto. The Debtor has only one state of incorporation or organization. The Debtor has not, during the five years prior to the date of this
Security Agreement, been known by or used any other corporate or fictitious name or been party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or acquired any of its property or assets out of the
ordinary course of business, except as set forth on Schedule II hereto. The Debtor has not (i) within the period of four months prior to the date hereof, changed its location (as defined in Section 9-307 of the Code),
(ii) except as specified on Schedule II hereto, heretofore changed its name, or (iii) except as specified on Schedule II hereto, heretofore became “new debtor” (as defined in Section 9-102(a)(56)
of the Code) with respect to a currently effective security agreement previously entered into by any other Person. 
 4.
Covenants. The Debtor covenants and agrees with the Collateral Agent, for the benefit of the Secured Parties, that from and after the date of this Security Agreement and until the Termination Date: 
 (a) Further Assurances. 
 (i) At any
time and from time to time, upon any written request of the Collateral Agent, at the sole expense of the Debtor, the Debtor shall promptly and duly execute and deliver any and all such further instruments and documents and take such further actions
as may be necessary or desirable or reasonably requested by the Collateral Agent to obtain the full benefits of this Security Agreement and of the rights and powers herein granted, including (A) using all reasonable efforts to secure all
consents and approvals necessary or appropriate to enforce the security interests granted hereunder; and (B) filing any financing statements, mortgages, continuation statements, assignments and amendments with respect to the Liens granted
hereunder as to those jurisdictions that are not Uniform Commercial Code jurisdictions. 
 (ii) The Debtor hereby irrevocably and
unconditionally authorizes the Collateral Agent at any time and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statements, continuation statements, assignments and amendments thereto
that (a) indicate the Collateral, and (b) contain any other information required by Article 9 of the Code for the sufficiency or filing office acceptance of any financing statement or amendment. The Debtor agrees to furnish any such
information to the Collateral Agent promptly upon request. The Debtor also ratifies its authorization for the Collateral Agent to have filed in any Uniform Commercial Code jurisdiction any initial financing statements or amendments thereto if filed
prior to the date hereof and ratifies and confirms the authorization of the Collateral Agent to file such financing statements (and amendments, if any). The Debtor hereby authorizes the Collateral Agent to adopt on behalf of the Debtor any symbol
required for authenticating any electronic filing. In the event that the description of the collateral in any financing statement naming the Collateral Agent or its designee as the secured party and the Debtor as debtor includes assets and
properties of the Debtor that do not at any time constitute Collateral, whether hereunder, under any of the other Note Documents or otherwise, the filing of such financing statement shall nonetheless be deemed authorized by the Debtor to the extent
of the Collateral included in such description and it shall not render the financing statement ineffective as to any of the Collateral or otherwise affect the financing statement as it 

  

 3 

 
applies to any of the Collateral. In no event shall the Debtor at any time file, or permit or cause to be filed, any correction statement or termination
statement with respect to any financing statement (or amendment or continuation with respect thereto) naming the Collateral Agent or its designee as secured party and the Debtor as debtor. 
 (iii) Upon the occurrence and during the continuance of any Event of Default, the Debtor shall take all steps necessary to grant the Collateral Agent
control of and a perfected Lien on all Chattel Paper, Instruments, Deposit Accounts, Investment Property, investment accounts, security accounts, commodity accounts, letters of credit or banker’s acceptance constituting Collateral (including,
without limitation, the delivery to the Collateral Agent of all such Collateral, accompanied by such instruments of transfer or assignment duly executed in black, the delivery of a deposit or investment property control agreement executed by the
Debtor and any applicable financial institution). 
 (iv) The Debtor shall, upon the occurrence and during the continuance of any Event of
Default, upon request of the Collateral Agent, promptly notify (and the Debtor hereby authorizes the Collateral Agent so to notify) each Account Debtor in respect of any Accounts of the Debtor that such Collateral has been assigned to the Collateral
Agent hereunder, and that any payments due or to become due in respect thereof are to be made directly to the Collateral Agent. 
 (b)
Maintenance of Records. The Debtor shall keep and maintain, at its own cost and expense, satisfactory and complete records of the Collateral, including a record of any and all payments received and any and all credits granted with respect to
the Collateral in the same manner such records are presently kept and maintained. 
 (c) Limitation on Liens on Collateral. The Debtor
will not create, permit or suffer to exist, and the Debtor will defend the Collateral against, and take such other action as is necessary to remove, any Lien on the Collateral except Permitted Encumbrances, and will defend the right, title and
interest of the Secured Parties in and to any of the Debtor’s rights under the Collateral against the claims and demands of all Persons whomsoever. 
 (d) Limitations on Disposition. The Debtor will not sell, license, lease, transfer or otherwise dispose of any of the Collateral (other than Inventory in the ordinary course of business), or attempt or contract
to do so except as permitted by the Purchase Agreement. 
 (e) Further Identification of Collateral. The Debtor will, if so requested
by the Collateral Agent, furnish to the Collateral Agent, as often as the Collateral Agent reasonably requests, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as
the Collateral Agent may reasonably request, all in such detail as the Collateral Agent may reasonably specify. 
 (f) Notices. The
Debtor will advise the Collateral Agent promptly, in reasonable detail, (i) of any Lien (other than Permitted Encumbrances) or written claim made or asserted against any of the Collateral, and (ii) of the occurrence of any other event
which could have a material adverse effect on the value of the Collateral or on the Liens created hereunder. 
  

 4 

 (g) No Reincorporation; No Name Change. The Debtor shall not reincorporate or reorganize itself
under the laws of any jurisdiction other than the jurisdictions in which they are incorporated or organized as of the date hereof without the prior written consent of the Collateral Agent. The Debtor shall not change its legal name without first
giving 30 days prior written notice of its intent to do so to the Collateral Agent. 
 5. Collateral Agent’s Appointment As
Attorney-in-fact. On the Closing Date, the Debtor shall execute and deliver to the Collateral Agent a power of attorney (the “Power of Attorney”) substantially in the form attached hereto as Exhibit
A. The power of attorney granted pursuant to the Power of Attorney is a power coupled with an interest and shall be irrevocable until the Termination Date. The powers conferred on the Collateral Agent, for the benefit of the Secured Parties,
under the Power of Attorney are solely to protect the Collateral Agent’s interests (for the benefit of the Secured Parties) in the Collateral and shall not impose any duty upon the Secured Parties to exercise any such powers. The Collateral
Agent agrees with the Secured Parties and the Company that (a) except for the powers granted in clause (h) of the Power of Attorney, it shall not exercise any power or authority granted under the Power of Attorney unless an Event of
Default has occurred and is continuing, (b) it shall not exercise any power or authority under the Power of Attorney unless such action has been approved in writing by the holders of a majority in principal amount of the Notes outstanding (the
“Required Holders”), and (c) the Collateral Agent shall account for any moneys received by the Collateral Agent in respect of any foreclosure on or disposition of Collateral pursuant to the Power of Attorney provided
that the Secured Parties shall not have any duty as to any Collateral, and the Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers. NONE OF THE SECURED PARTIES OR THEIR
RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO THE DEBTOR FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION. 
 6. Remedies: Rights Upon
Default. 
 (a) In addition to all other rights and remedies granted to it under this Security Agreement, the other Note Documents and
under any other instrument or agreement securing, evidencing or relating to any of the Secured Obligations, if any Event of Default shall have occurred and be continuing, the Collateral Agent may exercise all rights and remedies of a secured party
under the Code. Without limiting the generality of the foregoing, the Debtor expressly agrees that in any such event the Collateral Agent, on behalf of the Secured Parties, without demand of performance or other demand, advertisement or notice of
any kind (except the notice specified below of time and place of public or private sale) to or upon the Debtor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted
by the Code and other applicable law), may forthwith enter upon the premises of the Debtor where any Collateral is located through self-help, without judicial process, without first obtaining a final judgment or giving the Debtor or any other Person
notice and opportunity for a hearing on the Secured Parties’ claim or action and may collect, receive, assemble, process, appropriate and realize upon the Collateral, or any part 

  

 5 

 
thereof, and may forthwith sell, lease, license, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral
(or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange at such prices as it may deem acceptable, for cash or on credit or for future delivery without assumption of any credit risk.
The Collateral Agent shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase for the benefit of the Secured Parties, the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption the Debtor hereby releases. Such sales may be adjourned and continued from time to time with or without notice. The Collateral Agent shall have the right to conduct such
sales on the Debtor’s premises or elsewhere and shall have the right to use the Debtor’s premises without charge for such time or times as the Collateral Agent deems necessary or advisable. 
 If any Event of Default shall have occurred and be continuing, the Debtor further agrees, at the Collateral Agent’s request, to assemble the
Collateral and make it available to the Collateral Agent at a place or places designated by the Collateral Agent which are reasonably convenient to the Collateral Agent and the Debtor, whether at the Debtor’s premises or elsewhere. Until the
Collateral Agent is able to affect a sale, lease, or other disposition of Collateral, the Collateral Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving
Collateral or its value or for any other purpose deemed appropriate by the Collateral Agent. The Collateral Agent shall have no obligation to the Debtor to maintain or preserve the rights of the Debtor as against third parties with respect to
Collateral while Collateral is in the possession of the Collateral Agent. The Collateral Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of the Secured Parties’ or
Collateral Agent’s remedies, with respect to such appointment without prior notice or hearing as to such appointment. The Collateral Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or
sale to the Secured Obligations as provided in the Note Documents, and only after so paying over such net proceeds, and after the payment by the Collateral Agent of any other amount required by any provision of law, need the Collateral Agent account
for the surplus, if any, to the Debtor. To the maximum extent permitted by applicable law, the Debtor hereby waives all claims, damages, and demands against the Secured Parties and the Collateral Agent arising out of the repossession, retention or
sale of the Collateral except such as arise solely out of the gross negligence or willful misconduct of such Secured Party or Collateral Agent as finally determined by a court of competent jurisdiction. The Debtor agrees that ten (10) days
prior notice by the Collateral Agent of the time and place of any public sale or of the time after which a private sale may take place is reasonable notification of such matters. The Debtor shall remain liable for any deficiency if the proceeds of
any sale or disposition of the Collateral are insufficient to pay all Secured Obligations, including any attorneys’ fees and other expenses incurred by the Collateral Agent to collect such deficiency. 
 (b) Except as otherwise specifically provided herein, the Debtor hereby waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. 
 (c) To the extent that applicable
law imposes duties on Secured Parties or the Collateral Agent to exercise remedies in a commercially reasonable manner, the Debtor 

  

 6 

 
acknowledges and agrees that it is not commercially unreasonable for the Secured Parties or Collateral Agent (i) to fail to incur expenses reasonably
deemed significant by the Secured Parties or Collateral Agent to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain
third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of,
(iii) to fail to exercise collection remedies against Account Debtors or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against Account Debtors and
other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (vi) to contact other Persons, whether or not in the same business as the Debtor, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional
auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the
Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession
or quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure the Secured Parties and/or the Collateral Agent against risks of loss, collection or disposition of Collateral or to provide to the Secured Parties a guaranteed
return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by the Collateral Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the
Collateral Agent in the collection or disposition of any of the Collateral. The Debtor acknowledges that the purpose of this Section 6(c) is to provide non-exhaustive indications of what actions or omissions by the Secured Parties
or Collateral Agent would not be commercially unreasonable in the Secured Parties’ or Collateral Agent’s exercise of remedies against the Collateral and that other actions or omissions by the Secured Parties or Collateral Agent shall not
be deemed commercially unreasonable solely on account of not being indicated in this Section 6(c). Without limitation upon the foregoing, nothing contained in this Section 6(c) shall be construed to grant any
rights to the Debtor or to impose any duties on the Secured Parties or Collateral Agent that would not have been granted or imposed by this Security Agreement or by applicable law in the absence of this Section 6(c). 

(d) The Secured Parties and Collateral Agent shall not be required to make any demand upon, or pursue or exhaust any of their rights or remedies
against, the Debtor, any other obligor, guarantor, pledgor or any other Person with respect to the payment of the Secured Obligations or to pursue or exhaust any of their rights or remedies with respect to any Collateral therefor or any direct or
indirect guarantee thereof. The Secured Parties and Collateral Agent shall not be required to marshal the Collateral or any guarantee of the Secured Obligations or to resort to the Collateral or any such guarantee in any particular order, and all of
its and their rights hereunder or under any other Document shall be cumulative. To the extent it may lawfully do so, the Debtor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the
Secured Parties or the Collateral Agent, any valuation, stay, appraisement, extension, redemption or similar laws and any and all rights or defenses it may have as sureties now or hereafter existing which, but for this provision, might be applicable
to the sale of any Collateral made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Security Agreement, or otherwise. 
  

 7 

 7. Grant Of Licenses To Use Intellectual Property Collateral. For the purpose of enabling
the Collateral Agent to exercise rights and remedies under Section 6 hereof (including, without limiting the terms of Section 6 hereof, in order to take possession of, hold, preserve, process, assemble, prepare
for sale, market for sale, sell or otherwise dispose of Collateral) at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, the Debtor hereby grants to the Collateral Agent, irrevocable, nonexclusive
licenses (exercisable without payment of royalty or other compensation to the Debtor) to use, license or sublicense any Intellectual Property now owned or hereafter acquired by the Debtor, and wherever the same may be located, and including in such
licenses access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. 
 8. Indemnity; Expenses; Limitation On Secured Parties’ and Collateral Agent’s Duty In Respect Of Collateral. 
 (a) Whether or not the transactions contemplated hereby are consummated, the Debtor shall indemnify and hold the Secured Parties, the Collateral Agent,
their respective Affiliates, and each of their directors, officers, agents and employees (collectively, the “Indemnified Persons”) harmless from and against any and all liabilities, obligations, losses, damages, penalties,
claims, demands, actions, judgments, suits, costs, charges, expenses and disbursements (including reasonable attorneys fees and expenses) of any kind or nature whatsoever which may at any time (including at any time following the termination of the
Secured Obligations and the termination, resignation or replacement of the Collateral Agent or any assignment by a Secured Party) be imposed on, incurred by or asserted against any such Indemnified Person in any way relating to or arising out of or
in connection with the execution, delivery, enforcement, performance or administration of this Security Agreement, the other Note Documents or any other agreement, letter or instrument delivered in connection with the transactions contemplated
hereby or the consummation of the transactions contemplated hereby or any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory (including any
investigation of, preparation for, or defense of any pending or threatened claim, investigation, litigation or proceeding) and regardless of whether any Indemnified Person is a party thereto (all the foregoing, collectively, the
“Indemnified Liabilities”), in all cases, whether or not caused by or arising, in whole or in part, out of the negligence of any Indemnified Person; provided that such indemnity shall not, as to any Indemnified Person, be
available to the extent that such Indemnified Liabilities are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnified Person. In the
case of an investigation, litigation or other proceeding to which the indemnity in this Section 8 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Debtor, its
directors, shareholders or creditors or an Indemnified Party or any other Person, whether or not an Indemnified Person is otherwise a party thereto and whether or not any of the transactions contemplated hereunder or under any of the other Note
Documents are consummated. All amounts due under this Section 8 shall be payable within five Business Days after demand therefor. The agreements in this 

  

 8 

 
Section 8 shall survive the resignation of the Collateral Agent, the assignment by a Secured Party and the repayment, satisfaction or
discharge of all the other Secured Obligations. In the event that any investigation, litigation or proceeding is asserted or threatened in writing or instituted against any Indemnified Person, or any remedial, removal or response action which is
requested of it or any other Indemnified Person, for which such Indemnified Person may desire indemnity or defense hereunder, such Indemnified Person shall notify the Debtor in writing of such event; provided that failure to so notify the Debtor
shall not affect the right of any Indemnified Person to seek indemnification under this Section 8. 
 (b) the Debtor will
upon demand pay to the Collateral Agent the amount of any and all reasonable expenses, including, without limitation, the fees and expenses of its counsel and of any experts and agents, that the Collateral Agent may incur in connection with
(i) the administration of this Security Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral of the Debtor, (iii) the exercise or enforcement
of any of the rights of the Secured Parties hereunder or (iv) the failure by the Debtor to perform or observe any of the provisions hereof. 
 (c) The Secured Parties and Collateral Agent shall use reasonable care with respect to the Collateral in their possession or under their control. The Secured Parties and Collateral Agent shall not have any other duty as to any Collateral in
its possession or control or in the possession or control of any agent or nominee of the Secured Parties, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. 
 9. Collateral Agent. 
 (a)
Collateral Agent Has No Duty. The powers conferred on the Collateral Agent hereunder are solely to protect its interest (on behalf of the Secured Parties) in the Collateral and shall not impose any duty on it to exercise any such powers.

 (b) Reasonable Care. The Collateral Agent is required to exercise reasonable care in the custody and preservation of any of the
Collateral in its possession; provided, however, that the Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral if it takes such action for that purpose as any owner thereof
reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Collateral Agent, to comply with any such request at any time shall not in itself be deemed a failure to
exercise reasonable care. 
 (c) Other Provisions Relating to the Collateral Agent. 
 (i) The Collateral Agent has such powers, rights and obligations as are expressly delegated to the Collateral Agent by the terms of this Security
Agreement and the other Note Documents. Subject to Section 9(c)(iv), the Collateral Agent may, from time to time, appoint another Person to act as Collateral Agent. The Collateral Agent, acting in its capacity as such, shall have
only such duties with respect to the Collateral as are set forth herein. 
 (ii) Except during the continuance of an Event of Default, the
Collateral Agent need perform only those duties that are specifically set forth in this Security 

  

 9 

 
Agreement and no others, and no implied covenants or obligations will be read into this Security Agreement against the Collateral Agent. In case an Event of
Default has occurred and is continuing, if so directed by the Required Holders, the Collateral Agent shall exercise those rights and powers vested in it by this Security Agreement, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his own affairs. 
 (iii) As to any matters not expressly
provided for by this Security Agreement or the other Note Documents, the Collateral Agent shall not be required to take any action or exercise any discretion, but shall be required to act or to refrain from acting upon the instructions of the
Required Holders and shall in all such cases be fully protected in acting, or in refraining from acting, in accordance with such instructions of the Required Holders, and any action taken or failure to act pursuant thereto shall be binding on the
Holders. Notwithstanding any other provisions herein, the Collateral Agent shall not be required to advance or expend any funds or otherwise incur any financial liability in the performance of its duties or the exercise of its powers or rights
hereunder at the request of the Required Holders unless the Debtor or the Holders have provided to the Collateral Agent security or indemnity, which the Collateral Agent, in its reasonable discretion, deems sufficient against any and all liability
or expense which may be incurred by it by reason of taking or continuing to take such action. The Collateral Agent shall have no liability to either the Company or the Secured Parties, or any of them, for the performance or non-performance of its
duties hereunder, provided such performance or non-performance is within the standards and obligations expressly set forth herein. 
 (iv)
Subject to the appointment and acceptance of a successor Collateral Agent, the Collateral Agent may resign at any time by giving not less than thirty (30) days’ notice thereof to the Holders and the Debtor. Upon the acceptance of any
appointment as Collateral Agent hereunder by a successor Collateral Agent, (A) such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent, and
the retiring Collateral Agent shall be discharged from its duties and obligations hereunder, and (B) the retiring Collateral Agent shall promptly transfer all Collateral within its possession or control to the possession or control of the
successor Collateral Agent and shall execute and deliver such notices, instructions and assignments as may be necessary or desirable to transfer the rights of the Collateral Agent in respect of the Collateral to the successor Collateral Agent. After
any retiring Collateral Agent’s resignation or replacement hereunder as Collateral Agent, the provisions of this Section shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting
as Collateral Agent. Upon any such resignation or removal, the former Collateral Agent shall take all steps necessary to assign the Collateral to the successor Collateral Agent. 
 10. Reinstatement. This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed
by or against the Debtor for liquidation or reorganization, should the Debtor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of the
Debtor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent 

  

 10 

 
conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 
  

			
	If to the Company:	  	 39655 Eureka Drive
 Newark, California
94560
 Attn: Chief Executive Officer
 Telephone: (510) 619-9200

 Facsimile: (510) 291-3001

		
	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 the Collateral Agent:	  	 Vision Capital Advisors, LLC
 20 West 55th Street
 New York, NY 10019
 Attn: Jess Jones
 Telephone: (212)
849-8243
 Facsimile: (212) 867-1416

		
	with copies to:	  	 Sadis & Goldberg LLP
 551 Fifth Avenue,
21st Floor
 New York, New York 10176
 Attention: Paul Fasciano, Esq.
 Telephone: (212) 573-8025
 Facsimile: (212) 573-8026

 11. Severability. Whenever possible, each provision of this Security Agreement shall
be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. This Security Agreement is to be read, construed and applied together with the Purchase Agreement and the other
Note Documents which, taken together, set forth the complete understanding and agreement of the Collateral Agent, the Holders and the Debtor with respect to the matters referred to herein and therein. 
 12. No Waiver; Cumulative Remedies. The Secured Parties shall not by any act, delay, omission or otherwise be deemed to have waived any of
its rights or remedies hereunder, 

  

 11 

 
and no waiver shall be valid unless in writing, signed by the Collateral Agent and then only to the extent therein set forth. A waiver by the Collateral
Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Collateral Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the
part of the Secured Parties, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions
of this Security Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the Collateral Agent and the Debtor. 
 13. Limitation By Law. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law,
and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement
invalid, or unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. 
 14. Termination Of This Security Agreement. Subject to Section 10 hereof, this Security Agreement shall terminate upon the Termination Date. In addition, 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 Security Agreement upon written notice to
Collateral Agent. 
 15. Successors And Assigns. This Security Agreement and all obligations of the Debtor hereunder shall be
binding upon the successors and assigns of the Debtor (including any debtor-in-possession on behalf of the Debtor) and shall, together with the rights and remedies of the Collateral Agent, for the benefit of the Secured Parties, hereunder, inure to
the benefit of the Secured Parties and all future holders of any instrument evidencing any of the Secured Obligations and their respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions
of any agreement governing or instrument evidencing the Secured Obligations or any portion thereof or interest therein shall in any manner impair the Lien granted to the Collateral Agent, for the benefit of the Secured Parties, hereunder. The Debtor
may not assign, sell, hypothecate or otherwise transfer any interest in or obligation under this Security Agreement. 
 16.
Counterparts. This Security Agreement may be authenticated in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. This Security Agreement may be authenticated by manual
signature, facsimile or, if approved in writing by the Collateral Agent, electronic means, all of which shall be equally valid. 
 17.
Governing Law. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS SECURITY 

  

 12 

 
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION
OR PROCEEDING IS IMPROPER. NOTHING IN THIS SECURITY AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE SECURED PARTIES FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR
THE SECURED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE SECURED PARTIES. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS SECURITY AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND
SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY. 
 18. Waiver Of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY, THE PARTIES DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, AMONG THE SECURED PARTIES AND THE DEBTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF THE OTHER NOTES DOCUMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO. 
 19. Expenses. The Debtor agrees to reimburse the Secured Parties for all costs and expenses incurred by
them (including, without limitation, the fees and expenses of legal counsel) in connection with (i) any Default or Event of Default and any enforcement or collection proceeding resulting therefrom, including, without limitation, all manner of
participation in or other involvement with (w) performance by the Collateral Agent of any obligations of the Debtor 

  

 13 

 
in respect of the Collateral that the Debtor has failed or refused to perform, (x) bankruptcy, insolvency, receivership, foreclosure, winding up or
liquidation proceedings, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the
Collateral Agent in respect thereof, by litigation or otherwise, including expenses of insurance, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout,
restructuring or transaction contemplated thereby is consummated) and (ii) the enforcement of this Section 19, and all such costs and expenses shall be Secured Obligations entitled to the benefits of the collateral security
provided pursuant to Section 2. 
 20. Section Titles. The Section titles contained in this Security
Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement among the parties hereto. 
 21. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Security Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Security Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Security
Agreement. 
 22. Benefit Of Secured Party. All Liens granted or contemplated hereby shall be for the benefit of the Secured
Parties, and all proceeds or payments realized from Collateral in accordance herewith shall be applied to the Secured Obligations in the manner determined by the Collateral Agent in its sole discretion. 
 [remainder of page intentionally left blank] 
  

 14 

 IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and
delivered by its duly authorized officer as of the date first set forth above. 
  

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

	Name:	 	Marc Whyte
	Title:	 	CEO
	
	The Collateral Agent:
	
	VISION CAPITAL ADVISORS, LLC 
		
	By:	 	 /s/ Adam Benowitz

	Name:	 	Adam Benowitz
	Title:	 	PM

  

 15 

 ANNEX A  
 to 
 SECURITY AGREEMENT 
 DEFINITIONS 
 Capitalized terms used in the Security Agreement shall have
the following respective meanings, and all references to Sections, Exhibits, Schedules or Annexes in the following definitions shall refer to Sections, Exhibits, Schedules or Annexes of or to the Security Agreement: 
 “Account Debtor” means any Person who may become obligated to the Debtor under, with respect to, or on account of, an Account.

 “Accounts” means all “accounts,” as such term is defined in the Code, now owned or hereafter acquired by
the Debtor, including (as the context may reasonably permit) (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper or Instruments; but including any
such obligations that may be characterized as an account or contract right under the Code), (b) all of the Debtor’s rights in, to and under all purchase orders or receipts for goods or services, (c) all of the Debtor’s rights to
any goods represented by any of the foregoing (including unpaid sellers’ rights of rescission, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all rights to payment due to the Debtor for
property sold, leased, licensed, assigned or otherwise disposed of, for a policy of insurance issued or to be issued, for a secondary obligation incurred or to be incurred, for energy provided or to be provided, for the use or hire of a vessel under
a charter or other contract, arising out of the use of a credit card or charge card, or for services rendered or to be rendered by the Debtor or in connection with any other transaction (whether or not yet earned by performance on the part of the
Debtor), (e) all health care insurance receivables and (f) all collateral security of any kind, given by any Account Debtor or any other Person with respect to any of the foregoing. 
 “Bankruptcy Code” means the provisions of Title 11 of the United States Code, 11 U.S.C. §§ 101 et
seq. 
 “Business Day” means any day that is not a Saturday, a Sunday or a day on which banks are required or
permitted to be closed in the City of New York. 
 “Chattel Paper” means any “chattel paper,” as such term
is defined in the Code, including electronic chattel paper, now owned or hereafter acquired by the Debtor. 
 “Code”
means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of New York; provided, that to the extent that the Code is used to define any term herein and such term is defined differently in
different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of, or remedies with respect to, the Lien on any Collateral under the Security Agreement is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term
“Code” shall mean the Uniform 

 
Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection,
priority or remedies and for purposes of definitions related to such provisions. 
 “Collateral” has the meaning
ascribed to it in Section 2(a). 
 “Copyright License” means any and all rights now owned or
hereafter acquired by the Debtor under any written agreement granting any right to use any Copyright or Copyright registration. 
 “Copyrights” means all of the following now owned or hereafter adopted or acquired by the Debtor: (a) all copyrights, all General Intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any state or
territory thereof, or any other country or any political subdivision thereof, (b) all reissues, extensions or renewals thereof, (c) the right to recover for all past, present and future infringements thereof and (d) all other rights
of any kind whatsoever accruing thereunder as pertaining thereto. 
 “Default” means any condition or event which is,
or, with notice or lapse of time or both, would become, an Event of Default. 
 “Deposit Accounts” means all
“deposit accounts” as such term is defined in the Code, now or hereafter held in the names of the Debtor. 
 “Event of
Default” has the meaning ascribed to it in Section 2.1 of the Notes. 
 “General
Intangibles” means all “general intangibles,” as such term is defined in the Code, now owned or hereafter acquired by the Debtor, including (as the context may reasonably permit) all right, title and interest that the Debtor
may now or hereafter have in or under any Contract, all payment intangibles, customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor and reissues, extensions or renewals thereof, rights in Intellectual Property,
interests in partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures,
designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims
in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and
all unearned premiums), choses in action, rights to receive tax refunds and other payments, rights to receive dividends, distributions, cash, Instruments and other property in respect of or in exchange for any pledged Investment Property, rights of
indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Debtor or any
computer bureau or service company from time to time acting for the Debtor. 

 “Instruments” means all “instruments,” as such term is defined in the
Code, now owned or hereafter acquired by the Debtor, wherever located, and, in any event, including all certificates of deposit, and all promissory notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a
group of writings that constitute, Chattel Paper. 
 “Intellectual Property” means collectively, all Copyrights, all
Patents and all Trademarks, together with (a) all inventions, processes, production methods, proprietary information, know-how and trade secrets; (b) all Copyright Licenses, Patent Licenses and Trademark Licenses; (c) all information,
customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, engineering reports, test reports, manuals, materials standards, processing standards, performance standards,
catalogs, computer and automatic machinery software and programs; (d) all field repair data, sales data and other information relating to sales or service of products now or hereafter manufactured; (e) all accounting information and all
media in which or on which any information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data; (f) all licenses, consents,
permits, variances, certifications and approvals of governmental agencies now or hereafter held by the Debtor and (g) all clauses of action, claims, and warranties now or hereafter owned or acquired by the Debtor in respect of any of the items
listed above. 
 “Inventory” means all “inventory,” as such term is defined in the Code, now owned or
hereafter acquired by the Debtor, wherever located, and in any event including (as the context may reasonably permit) inventory, merchandise, goods and other personal property that are held by or on behalf of the Debtor for sale or lease or are
furnished or are to be furnished under a contract of service, or that constitute raw materials, work in process, finished goods, returned goods, or materials or supplies of any kind, nature or description used or consumed or to be used or consumed
in the Debtor’s business or in the processing, production, packaging, promotion, delivery or shipping of the same, including all supplies and embedded software. 
 “Investment Property” means all “investment property” as such term is defined in the Code now owned or hereafter acquired by the Debtor, wherever located, including (as the context
may reasonably permit) (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares;
(ii) all securities entitlements of the Debtor, including the rights of the Debtor to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing
by any securities intermediary with respect to that account; (iii) all securities accounts of the Debtor; (iv) all commodity contracts of the Debtor; and (v) all commodity accounts held by the Debtor. 
 “License” means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or
hereafter acquired by the Debtor. 
 “Lien” means any mortgage or deed of trust, pledge, hypothecation, assignment,
deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement,
any financing lease having substantially the 

 
same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code
or comparable law of any jurisdiction). 
 “Patent License” means rights under any written agreement now owned or
hereafter acquired by the Debtor granting any right with respect to any invention on which a Patent is in existence. 
 “Patents” means all of the following in which the Debtor now hold or hereafter acquire any interest: (a) all letters patent of the United States or of any other country, all registrations and recordings thereof,
and all applications for letters patent of the United States or of any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any
State, or any other country, (b) all reissues, continuations, continuations-in-part or extensions thereof, (c) all income, royalties, damages and payments now or hereafter due and/or payable under and with respect thereto, including,
without limitation, damages and payments for past or future infringements thereof, (d) the right to sue for past, present and future infringements thereof, and (e) all rights corresponding thereto throughout the world. 
 “Permitted Encumbrances” shall mean the following encumbrances: (i) Liens for taxes or assessments or other governmental
charges or levies, either not yet due and payable or which is being contested in good faith; (ii) pledges or deposits securing obligations under workers’ compensation, unemployment insurance, social security or public liability laws or
similar legislation; (iii) pledges or deposits securing bids, tenders, contracts or leases to which the Company or any of its subsidiaries is a party as lessee made in the ordinary course of business; (iv) deposits securing public or
statutory obligations; (v) inchoate and unperfected workers’, mechanics’, suppliers’ or similar liens arising in the ordinary course of business; (vi) carriers’, warehousemen’s or other similar possessory liens
arising in the ordinary course of business; (vii) deposits securing, or in lieu of, surety, appeal or customs bonds; (viii) encumbrances arising out of agreements identified in Schedule 2.1(h) of the Schedule of Exceptions to the Purchase
Agreement; (ix) presently existing or hereafter created Liens in favor of Secured Parties; and (x) any Lien that is junior to the Lien granted under the Security Agreement. 
 “Person” means a corporation, an association, a partnership, an organization, a business, an individual, a government or
political subdivision thereof or governmental authority. 
 “Proceeds” means “proceeds,” as such term is
defined in the Code, including (as the context may reasonably permit) (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Debtor from time to time with respect to any of the Collateral, (b) any and all
payments (in any form whatsoever) made or due and payable to the Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or
any Person acting under color of governmental authority), (c) any claim of the Debtor against third parties (i) for past, present or future infringement of any Patent or Patent License, or (ii) for past, present or future infringement
or dilution of any Copyright, Copyright License, Trademark or Trademark License, or for injury to the goodwill associated with any Trademark or Trademark License, (d) any recoveries by the Debtor against third parties with respect to any
litigation or dispute concerning 

 
any of the Collateral including claims arising out of the loss or nonconformity of, interference with the use of, defects in, or infringement of rights in,
or damage to, Collateral, (e) all amounts collected on, or distributed on account of, other Collateral, including dividends, interest, distributions and Instruments with respect to Investment Property, and (f) any and all other amounts,
rights to payment or other property acquired upon the sale, lease, license, exchange or other disposition of Collateral and all rights arising out of Collateral. 
 “Secured Obligations” means any and all obligations, liabilities and indebtedness for the payment of monetary amounts of every kind, nature and description owing by the Debtor or any obligor to
the Secured Parties under the Note Documents and incurred prior to the earlier of the Mandatory Conversion Date (as defined in the Notes) or repayment of all principal and interest under the Notes, including principal, interest, charges, fees,
premiums, indemnities and expenses, however evidenced, whether as principal, surety, endorser, a debtor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and whether arising directly or howsoever acquired by a Secured Party. 
 “Security Agreement” means this Security Agreement, as the same may be amended, supplemented, restated or otherwise modified from
time to time. 
 “Termination Date” means the date on which the Secured Obligations of the Debtor under this Security
Agreement and each other Note Document to which it is a party, have been indefeasibly satisfied. 
 “Trademark
License” means rights under any written agreement now owned or hereafter acquired by the Debtor granting any right to use any Trademark. 
 “Trademarks” means all of the following now owned or hereafter existing or adopted or acquired by the Debtor: (a) all trademarks, trade names, corporate names, business names, trade
styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and General Intangibles of like nature (whether registered or unregistered), all registrations and
recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory
thereof, or any other country or any political subdivision thereof, (b) all reissues, extensions or renewals thereof, (c) all rights corresponding thereto throughout the world (d) the right to recover for all past, present and future
infringements thereof and (e) all other rights of any kind whatsoever accruing thereunder or pertaining thereto, together, in each case, with the product lines and goodwill of the business connected with the use of, and symbolized by, any of
the foregoing. 
 The words “herein,” “hereof” and “hereunder” and other words of similar import refer to the
Security Agreement as a whole, including all Annexes, Exhibits and Schedules, as the same may from time to time be amended, restated, modified or supplemented, and not to any particular section, subsection or clause contained in the Security
Agreement or any such Annex, Exhibit or Schedule. 

 Wherever from the context it appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter genders. The words “including”, “includes” and “include” shall be
deemed to be followed by the words “without limitation”; the word “or” is not exclusive; references to Persons include their respective successors and assigns or, in the case of governmental Persons, Persons succeeding to the
relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of the same and any successor statutes and regulations. Whenever any provision in this Security Agreement refers to the knowledge
(or an analogous phrase) of the Debtor, such words are intended to signify that the Debtor has actual knowledge or awareness of a particular fact or circumstance or the Debtor, if it had exercised reasonable diligence, would have known or been aware
of such fact or circumstance. 

 SCHEDULE I 
 to 
 SECURITY AGREEMENT 
 FILING JURISDICTIONS 
 Secretary of State of Delaware 
 Secretary of State of California 
 Secretary of State of Washington

 United States Patent and Trademark Office 
 European Patent
Office 
 French Patent Office 
 German Patent Office

 Japan Patent Office 
 United Kingdom Patent Office

 SCHEDULE II 
 to 
 SECURITY AGREEMENT 
 SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL 
 AND RECORDS CONCERNING
DEBTOR’S COLLATERAL 
 Name: NovaRay Medical, Inc. 
 Type of Entity: Corporation 
 Organizational Identification Number: 4231532 
 Jurisdiction of Incorporation: Delaware 
 Location of chief executive office, principal place of business, offices and
premises where Collateral is stored or located, and the locations of its books and records concerning the Collateral: 
 39655 Eureka Drive 
 Newark, California 94560 
 Morrison & Foerster LLP 
 755 Page Mill Road 
 Palo Alto, California 94304 
 Alston & Bird LLP 
 Two Palo Alto Square 
 3000 El Camino Real, Suite 400 
 Palo Alto, California 94306 
 BDO Seidman, LLP 
 50 West San Fernando Street, Suite 200 
 San Jose, California 95113 
 Other Names during past five (5) years:
Vision Acquisition I, Inc., NovaRay, Inc. 
 Mergers, Consolidations and Acquisitions: Mergers with NovaRay, Inc., acquisition of assets of NexRay, Inc.,
acquisition of certain assets of Ambric 

 SCHEDULE III 
 to 
 SECURITY AGREEMENT 
 SCHEDULE OF INTELLECTUAL PROPERTY 
  

	A.	See Schedule 2.1(m) to the Schedule of Exceptions to the Purchase Agreement 

 EXHIBIT A 
 FORM OF 
 POWER OF ATTORNEY 
 This Power of Attorney is executed and delivered by NOVARAY MEDICAL, INC., a Delaware corporation (the “Grantor”), to Vision
Capital Advisors, LLC (hereinafter referred to the “Attorney”), as the Collateral Agent for the benefit of the Secured Parties under a Security Agreement, dated as of July 2, 2009 and other related documents
(collectively, the “Documents”). No person to whom this Power of Attorney is presented, as authority for the Attorney to take any action or actions contemplated hereby, shall be required to inquire into or seek confirmation
from the Grantor as to the authority of the Attorney to take any action described below, or as to the existence of or fulfillment of any condition to this Power of Attorney, which is intended to grant to the Attorney unconditionally the authority to
take and perform the actions contemplated herein. The power of attorney granted hereby is coupled with an interest, and may not be revoked or canceled by the Grantor without the Attorney’s written consent. 
 The Grantor hereby irrevocably constitutes and appoints the Attorney (and all officers, employees or agents designated by the Attorney), with full power
of substitution, as the Grantor’s true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Grantor and in the name of the Grantor or in its own name, from time to time in the Attorney’s
discretion, without notice to or assent by the Grantor, and at any time in the case of clause (h) below and at any time an Event of Default (as defined in the Security Agreement) has occurred and is continuing in the case of (a), (b), (c), (d),
(e), (f), (g), (i) and (j) below, to do the following: (a) change the mailing address of the Grantor, open a post office box on behalf of the Grantor, open mail for the Grantor, and ask, demand, collect, give acquittances and receipts
for, take possession of, endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtor, assignments, verifications, and notices in connection with any property of the Grantor constituting
Collateral; (b) effect any repairs to any asset of the Grantor, or continue or obtain any insurance and pay all or any part of the premiums therefor and costs thereof, and make, settle and adjust all claims under such policies of insurance, and
make all determinations and decisions with respect to such policies; (c) pay or discharge any taxes, liens, security interests, or other encumbrances levied or placed on or threatened against the Grantor or its property constituting Collateral;
(d) defend any suit, action or proceeding brought against the Grantor if the Grantor does not defend such suit, action or proceeding or if the Attorney believes that the Grantor is not pursuing such defense in a manner that will maximize the
recovery to the Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as the Attorney may deem appropriate; (e) file or prosecute any claim,
litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by the Attorney for the purpose of collecting any and all such moneys due to the Grantor whenever
payable and to enforce any other right in respect of the Grantor’s property constituting Collateral; (f) cause the certified public accountants then engaged by the Grantor to prepare and deliver to the Attorney at any time and from time to
time, promptly upon the Attorney’s request, the following reports: (1) a reconciliation of all accounts, (2) an aging of all 

 
accounts, (3) trial balances, (4) test verifications of such accounts as the Attorney may request, and (5) the results of each physical
verification of inventory; (g) communicate in its own name with any party to any contract with regard to the assignment of the right, title and interest of the Grantor in and under the contracts and other matters relating thereto; (h) file
such financing statements with respect to the aforesaid Security Agreement, with or without the Grantor’s signature, or to file a photocopy of the Security Agreement in substitution for a financing statement, as the Collateral Agent may deem
appropriate and to execute in the Grantor’s name such financing statements and amendments thereto and continuation statements which may require the Grantor’s signature; (i) execute, in connection with any sale provided for in any
Document, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral and to otherwise direct such sale or resale, all as though the Attorney were the absolute owner of the property of the Grantor for
all purposes, and (j) at the Attorney’s option and the Grantor’s expense, at any time or from time to time, all acts and other things that the Attorney reasonably deems necessary to perfect, preserve, or realize upon the
Grantor’s property or assets and the Collateral Agent’s Liens thereon, all as fully and effectively as the Grantor might do. The Grantor hereby ratifies, to the extent permitted by law, all that said Attorney shall lawfully do or cause to
be done by virtue hereof. 
 [signature page follows] 

 IN WITNESS WHEREOF, this Power of Attorney is executed by the Grantor, and the Grantor has caused its
seal to be affixed pursuant to the authority of its board of directors this 2nd day of July, 2009. 
  

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

	Name:	 	Marc Whyte
	Title:	 	CEO

 NOTARY PUBLIC CERTIFICATES 
 On this 2nd day of July, 2009,
                                         [name]
who is personally known to me appeared before me in his/her capacity as the
                                         [title]
of NOVARAY MEDICAL, INC. and executed on behalf of such entity the Power of Attorney in favor of VISION CAPITAL ADVISORS, LLC to which this Certificate is attached. 
  

	
	  

	Notary Public

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