CONSULTING AGREEMENT

Exhibit 10.1

CONSULTING AGREEMENT

This Consulting Agreement (the "Agreement") is entered into as of the 19 ^th day of February, 2009, by and between NovaRay Medical, Inc. ("the Company") and Jack Price (the "Consultant").

            WHEREAS, Consultant is employed by the Company as its Chief Executive Officer and President;

            WHEREAS, Consultant desires to resign as Chief Executive Officer and President of the Company but remain on the Company's Board of Directors and the Company desires to accept such resignation by Consultant and desires that Consultant remain on its Board of Directors;

            WHEREAS, Company and Consultant desire to obtain a release from all claims, counterclaims and defenses that could be brought against the other party including without limitation pertaining to, in connection with or arising out of (i) Consultant's employment with Company, (ii) Consultant's resignation as Chief Executive Officer and President of the Company, (iii) the termination of Consultant's employment with Company and (iv) the Executive Employment Agreement (as defined below);

            WHEREAS, Consultant desires to receive and the Company desires to pay the amounts set forth herein;

            WHEREAS, Company desires to engage Consultant for certain services as set forth herein and Consultant desires to provide such services to the Company and its Board of Directors;

            WHEREAS, Consultant desires and the Company desires to continue vesting of the Consultant's Stock (as defined below) pursuant to the Restricted Stock Purchase Agreement dated as of October 23, 2006 (the "Restricted Stock Purchase Agreement").

NOW, THEREFORE, in consideration of the above premises and intending to be legally bound hereby, the parties agree as follows:

1. Resignation. Consultant hereby resigns as Chief Executive Officer and President of the Company as of February 28, 2009 pursuant to Section 7.3 of that certain Executive Employment Agreement dated as of December 19, 2007 (the "Executive Employment Agreement") and Company accepts such resignation. Consultant's employment with Company shall be terminated as of February 28, 2009. In consideration of signing this Agreement, Consultant shall receive payments of (i) $28,333, less regular withholdings, no later than the eighth day after Consultant has executed this Agreement, provided that Company has received the executed Agreement and Consultant has not revoked the Agreement, (ii) reimbursement of business expenses properly incurred prior to March 1, 2009 and submitted in accordance with the Company's policies and (iii) $5,000 or pro rata amount for each calendar quarter beginning on April 1, 2009 until the end of the term of this Agreement as set forth in Section 13 hereof, payable at the end of each calendar quarter with the first payment commencing June 30, 2009. Consultant shall not be entitled to any other compensation, benefits or payments from the Company.
2. Mutual Release. Consultant and Company hereby release and forever discharge the other party, its officers, Board of Directors, affiliated, related, parent or subsidiary corporations, employees, successors and agents from any and all claims, demands, obligations, causes of action of any nature whatsoever, whether based on tort, including but not limited to wrongful termination, public policy, constructive discharge, negligent or intentional tort; contract (implied, oral or written), or breach thereof; fraud; or statute, including the Age Discrimination in Employment Act, the Older Workers' Benefits Protection Act, the California Fair Employment & Housing Act; or any other theory of recovery or claim either in equity or in law, whether or not now known, suspected or unsuspected, or claimed, which Consultant or Company ever had or now has or claims to have, including without limitation in any way pertaining to, in connection with or arising out of (i) Consultant's employment with Company,(ii) Consultant's resignation as Chief Executive Officer and President of the Company, (iii) the termination of Consultant's employment with Company and (iv) the Executive Employment Agreement. Consultant and Company promise that such party will never file, at any time subsequent to the execution of this Agreement, in any state or federal court or before any local, state, or federal administrative agency, any claim or action of any kind, nature, or character whatever, known or unknown, which each may now have, or ever have had, against the other party with respect to any matter including without limitation pertaining to, in connection with or arising out of (i) Consultant's employment with Company, (ii) Consultant's resignation as Chief Executive Officer and President of the Company, (iii) the termination of Consultant's employment with Company and (iv) the Executive Employment Agreement. In addition, Consultant and Company hereby waive any and all rights or benefits which such party may have under the terms of section 1542 of the California Civil Code, which is set forth below as follows:

Section 1542. A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected in his settlement with the debtor.

3. Continued Vesting. Consultant's Stock (as defined in the Restricted Stock Purchase Agreement) shall continue to vest (as defined in the Restricted Stock Purchase Agreement) pursuant to Section 3 thereof until the later of (i) the end of the term of this Agreement as set forth in Section 13 below or (ii) the date on which Consultant ceases to be a member of the Company's Board of Directors. At such time, the Restricted Stock (as defined in the Restricted Stock Purchase Agreement) shall be subject to the Repurchase Option (as defined in the Restricted Stock Purchase Agreement) for a period of ninety (90) days from the later of (i) the end of the term of this Agreement as set forth in Section 13 below or (ii) the date on which Consultant ceases to be a member of the Company's Board of Directors. For purposes of the Restricted Stock Purchase Agreement, Consultant's termination of employment with the Company shall not be deemed a termination of Consultant's employment by the Company, a termination of employment by Consultant for Good Reason (as defined in the Restricted Stock Purchase Agreement) or a termination of employment by Consultant for Good Reason without consent. Subject to the foregoing, the Restricted Stock Purchase Agreement shall remain in full force and effect.
4. Independent Contractor. This Agreement shall not render the Consultant an employee, partner, agent of, or joint venturer with the Company for any purpose except as set forth in Section 16 of the Restricted Stock Purchase Agreement. Consultant is and will remain an independent contractor in the relationship with the Company. The Company shall not be responsible for withholding, social security, retirement, unemployment, worker's compensation, disability or similar taxes or insurance with respect to the compensation of the Consultant hereunder after February 28, 2009. The Consultant waives and shall have no claim against the Company hereunder or otherwise for vacation pay, sick leave, retirement benefits, social security, worker's compensation, health or disability benefits, unemployment insurance benefits, or employee benefits of any kind. Consultant agrees to indemnify the Company and hold it harmless from any and all claims on the Company to pay any withholding, social security, retirement, unemployment, worker's compensation, disability, vacation, sick leave, health or employee benefit obligations.
5. Duties. Subject to the terms and conditions of this Agreement, the Company hereby engages the Consultant as an independent contractor to consult in the strategic and market development activities for the Company's Board of Directors and the Consultant hereby accepts such engagement.
6. Expenses. During the term of this Agreement, the Consultant shall bill and the Company shall reimburse Consultant only for such out-of-pocket expenses for such amounts previously approved by the Company in writing.
7. Inventions.

1. 1. Any and all ideas, processes, technology, computer programs, software, original works of authorship, designs, formulas, patents, copyrights, trademarks, service marks, inventions, discoveries, developments, innovations and all improvements, rights and claims related to the foregoing that are conceived, developed or reduced to practice by the Consultant (alone or with others) pursuant to this Agreement ("Invention Ideas") shall be the exclusive property (whether or not patentable) of the Company; and the Consultant hereby assigns, without further consideration, all right, title, and interest (throughout the United States and in all foreign countries) in the Invention Ideas to the Company free and clear of all liens and encumbrances.
   2. The Consultant agrees to maintain adequate and current written records on development of all Invention Ideas for the Company and to promptly disclose to the Com