CREDIT AND SECURITY AGREEMENT

EXHIBIT 10.1

CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT (this "Agreement") is dated and effective as of March 12, 2009 by and between Triple Ring Technologies, Inc., a California corporation with its principal place of business in Newark, California (the "Lender"), and NovaRay Medical, Inc. a Delaware corporation with its principal place of business in Newark, California ("the Borrower"). The Lender and the Borrower are sometimes collectively referred to herein as the "parties" and individually as a "party."

RECITALS

WHEREAS, the Lender and the Borrower have entered into a Professional Services Agreement dated December 19, 2007 (the " Services Agreement"), pursuant to which the Lender will provide certain development, administrative and other services related to Borrower's technology on behalf of the Borrower in exchange for payment by Borrower as outlined under the Services Agreement; and

WHEREAS, in order to provide additional working capital to Borrower, the Lender has agreed to allow Borrower to make partial payments for services rendered under the Services Agreement and extend credit to Borrower in amounts equal to unpaid amounts due for services up to the Credit Limit (as defined below) as set forth below; and

WHEREAS, the Lender has agreed to make available to the Borrower, on a revolving basis, a line of credit in an amount of up to One Million Five Hundred Thousand U.S. Dollars (US $1,500,000) (the "Credit Line"), subject to the terms and conditions set forth herein, which line of credit will be evidenced by a promissory note in the form attached hereto as Exhibit A (the "Note"); and

WHEREAS, such Credit Line shall consist of Lender's partial forbearance of payments due by Borrower under the Services Agreement, as further described herein

WHEREAS, the parties desire to set forth certain terms and conditions relating to the Credit Line;

NOW, THEREFORE, in consideration of the mutual covenants, promises, representations and warranties set forth herein, the parties agree as follows:

ARTICLE I

DEFINITIONS

Unless defined elsewhere herein, all capitalized terms used in this Agreement shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined):

"AGREEMENT" shall mean this Credit and Security Agreement, as the same may be amended or otherwise modified from time to time.

"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other day on which commercial banks are authorized or required to close under the laws of the United States of America.

"CREDIT EXTENSION" shall have the meaning set forth in Section 2.01.

"CREDIT LIMIT" shall have the meaning set forth in Section 2.01.

"CREDIT LINE" shall have the meaning set forth in the recitals.

"EFFECTIVE DATE" shall mean the date on this Agreement shall become effective which will only occur after all of the conditions set forth in Section 6 have been satisfied or waived by the party(ies) for whose benefit they are intended; provided that, if the Effective Date does not occur on or prior to March 6, 2009 (as such date may be extended by the mutual agreement of the parties hereto), this Agreement shall be deemed null and void and neither Borrower or Lender shall be deemed to be obligated hereunder.

"EVENT OF DEFAULT" shall mean any of the events specified in Section 8.01, provided that any requirement for the giving of notice, the lapse of time, or both, or for the happening of any further condition, event or act has occurred or has been satisfied.

"GOVERNMENTAL AUTHORITY" shall mean any government (whether the located within or outside the United States) or any department, agency, division or instrumentality thereof.

"LAW" shall mean any statute, rule, regulation, order, judgment, award or decree of any Governmental Authority.

"LOAN DOCUMENTS" shall mean this Agreement, the Note and exhibits thereof executed in connection with the transactions contemplated by this Agreement.

"OBLIGATIONS" shall mean all loans, advances, liabilities and obligations for the payment of monetary amounts owing by Borrower to the Lender arising under the Agreement or Note including without limitation all principal, interest (including interest which accrues after commencement of any case or proceeding referred to in Section 8.01 hereof) fees, charges, claims, expenses, attorneys' fees and any other sum chargeable to the Borrower under this Agreement or Note.

"PERSON" shall mean and include an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or any other entity or a government or any agency or political subdivision thereof.

"OUTSTANDING PRINCIPAL BALANCE" shall mean the aggregate amount of all Credit Extensions made by the Lender to the Borrower hereunder, less all repayments thereof.

"SERVICES AGREEMENT" shall mean the Professional Services Agreement between the Lender and the Borrower, dated as of December 19, 2007, pursuant to which Lender will provide certain development, administrative and other services related to Borrower's technology in exchange for payment for such services by Borrower to Lender.

"TERMINATION DATE" shall mean the earliest to occur of (a) December 15, 2009, (b) termination of the Services Agreement, or (c) receipt of gross proceeds from equity or debt or other financing obtained by Borrower of at least Five Million Dollars ($5,000,000) in the aggregate after the Effective Date.

All monetary amounts expressed herein are stated in terms of U.S. Dollars.

ARTICLE II

AMOUNT AND TERMS OF CREDIT

SECTION 2.01. CREDIT EXTENSION.

During the term of this Agreement and subject to the terms and conditions hereof, the Lender agrees to make available from time to time until the Termination Date, extension of credit to the Borrower (each a "Credit Extension") as follows:

1. 1. on the Effective Date, one hundred seventy five thousand dollars ($175,000) (the "Initial Credit Extension");
   2. thirty (30) days after the Effective Date, an additional two hundred seventy five thousand dollars ($275,000) provided that at least six hundred twenty five thousand dollars ($625,000) is invoiced by Lender during such thirty (30) day period, and
   3. during the ten (10) day period after the invoice date of each invoice provided by Lender pursuant to the Services Agreement after such thirty (30) day period an additional one third (1/3) of the applicable amount due and invoiced, for Lender's services under the Services Agreement excluding out-of-pocket expenses incurred by Lender.

The Outstanding Principal Balance at any time shall not exceed the Credit Limit of One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00) (the "Credit Limit"). Each Credit Extension shall be made on notice by the Borrower in writing to Lender and shall be deemed Lender's forbearance under the Services Agreement of the amount set forth in such Credit Extension due by Borrower under the Services Agreement. Such notice shall be given no later than noon (California time) on the Business Day of the proposed Credit Extension. Each such notice of borrowing shall be substantially in the form of Exhibit B hereto and shall include the information required in such Exhibit and such other information as may reasonably be required by Lender. The Lender shall be entitled to rely upon and shall be fully protected under this Agreement in relying upon any such notice or similar notice believed by the Lender to be genuine and to assume that the persons executing and delivering the same were duly authorized unless the Lender shall have actual knowledge to the contrary.

The Credit Line will be evidenced by the Note attached hereto as Exhibit A and the Borrower shall execute and deliver to Lender such Note. Such Note shall represent the obligation of Borrower to pay the amount of the Credit Limit or, if less, the Outstanding Principal Balance, plus accrued and unpaid interest. The date and amount of each Credit Extension made by Lender to the Borrower and each payment of principal with respect thereto shall be recorded on the books and records of Lender, which books and records shall constitute conclusive evidence, absent manifest error, of the accuracy of the information therein recorded.

SECTION2.02. USE OF PROCEEDS. The Credit Line shall be applied by the Borrower for working capital purposes.

ARTICLE III

INTEREST AND INDEMNITY

SECTION 3.01 INTEREST. The Borrower shall pay interest to Lender on the aggregate Outstanding Principal Balance at a rate of two percent (2%). Upon the occurrence and during the continuation of any Event of Default, upon written request of the Lender, the interest rate applicable on the Outstanding Principal Balance shall be increased to ten percent (10%) (the "Default Rate") and interest on interest and other Obligations in default shall be charged at the Default Rate and shall be payable upon demand. Such interest shall be due and payable (i) upon the occurrence and during the continuation of any Event of Default upon the written request of the Lender, (ii) on the Termination Date or (iii) if any interest accrues or remains payable after the Termination Date, upon demand. Interest shall be calculated by the Lender on a daily basis and on the basis of a three hundred sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest is payable. Each determination by the Lender of an interest rate hereunder and each calculation of interest hereunder shall be conclusive and binding for all purposes, absent manifest error

SECTION 3.02 MAXIMUM LAWFUL RATE. Notwithstanding anything to the contrary set forth in Section 3.01 hereof, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, the Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Lender is equal to the total interest which would have been received had the interest rate payable hereunder been (but for operation of this paragraph) the interest rate payable pursuant to Section 3.01 hereof. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided in Section 3.01 above, unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by Lender pursuant to the terms hereof exceed the amount which such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. If, notwithstanding the provisions of this Section 3.02, a court of competent jurisdiction shall finally determine that a Lender has received interest hereunder in excess of the Maximum Lawful Rate, the Lender shall, to the extent permitted by applicable law, promptly apply such excess in the order specified in Section 8.02 and thereafter shall refund any excess to the Borrower or as a court of competent jurisdiction may otherwise order.

SECTION 3.03. The Borrower shall indemnify and hold the Lender and its officers, directors, employees, attorneys and agents (each, an "Indemnified Person"), harmless from and against any and all suits, actions, costs, fines, deficiencies, penalties, proceedings, claims, damages, losses, liabilities and expenses as incurred (including attorneys' fees and disbursements and other costs of investigations or defense, including those incurred upon any appeal) (each, a "Claim") which may be instituted or asserted against or incurred by such Indemnified Person as a result of this Agreement, the Note or any other Loan Document, credit having been extended under this Agreement or any other Loan Document, the use or intended use of proceeds of Credit Extensions, or otherwise arising in connection with the transactions contemplated hereunder and thereunder, regardless of whether the Indemnified Person is a party to such Claim; provided that Borrower shall not be liable for any indemnification to such Indemnified Person with respect to (i) any portion of any such Claim which results from such Indemnified Person's gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction, or (ii) any portion of such Claim which arises solely out of or in connection with a dispute between such Indemnified Person and one or more Indemnified Persons. NEITHER THE LENDER OR ANY INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS, THE USE OR INTENDED USE OF PROCEEDS OF CREDIT EXTENSIONS OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY. The foregoing provision in favor of any Indemnified Person shall be in addition to any rights that such Indemnified Person may have at common law or otherwise, including, but not limited to, any right to contribution.

SECTION 3.04. In any suit, proceeding or action brought by the Lender relating to any Collateral (as defined below) for any sum owing hereunder, or to enforce any provision of any Collateral, the Borrower shall save, indemnify and keep the Lender harmless from and against all expense, loss or damage suffered, as incurred, by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder arising out of a breach by the Borrower of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to, or in favor of, such obligor or its successors from the Borrower, all such obligations of the Borrower shall be and remain enforceable against, and only against, the Borrower and shall not be enforceable against the Lender.

ARTICLE IV

PAYMENTS

SECTION 4.01. The Outstanding Principal Balance and all accrued and unpaid interest shall be due and payable in full, without demand by the Lender, immediately upon 3:00 p.m. PST on the Termination Date. In addition, in the event of the early termination of the Services Agreement pursuant to the terms thereof, no additional Credit Extensions will be made by the Lender to the Borrower under this Agreement. In the event that the Outstanding Principal Balance of Credit Extensions made to Borrower at any time exceeds the Credit Limit, the Borrower shall immediately repay the Credit Extensions made to the Borrower in the amount of such excess. Any such excess balance described in the preceding sentence shall nevertheless constitute obligations that are secured by the Collateral and entitled to all of the benefits thereof and of the Agreement and shall be evidenced by the Notes.

SECTION 4.02. MANNER OF PAYMENTS. All payments on the Credit Line to be made by the Borrower shall be by direct wire transfer of immediately available funds to such accounts as shall be designated by the Lender from time to time. All such payments shall be denominated in U.S. dollars and shall be made on or before the date when due, without deduction, setoff or counterclaim by the Borrower.

SECTION 4.03. DUE DATES NOT ON BUSINESS DAYS. If payment required hereunder becomes due on a date that is not a Business Day, then such due date shall be deemed to be the next following Business Day and interest thereon shall be payable at the then applicable rate during such period.

SECTION 4.04. RIGHT TO PREPAY. The Borrower shall have the right, in its sole discretion, to prepay, in whole or in part, the Outstanding Principal Balance at any time, without any penalty.

ARTICLE V

GRANT OF SECURITY INTEREST

SECTION 5.01. GRANT OF SECURITY INTEREST. Borrower, in order to secure the payment of the principal on the Credit Line made, accrued interest and Obligations pursuant to this Agreement, does hereby grant to Lender and its successors and assigns, a lien and security interest in all the tangible and intangible assets of Borrower including without limitation all accounts, copyrights, documents, equipment, fixtures, general intangibles, goods, intellectual property, inventory, materials, parts, patents, trademarks and to the extent not otherwise included, all proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing (collectively, the " Collateral "). Such security interest constitutes a valid, first priority security interest in the Collateral; provided however, that Lender will share the first priority security interest in the Collateral on a pari passu basis based on amount of principal loaned with any third party who provides financing to Borrower during the term of this Agreement, pro-rated to reflect each parties' credit extensions to Borrower, upon Lender's written approval of such financing. All Credit Extensions to the Borrower and all of the other Obligations of the