Exhibit 10.22
AMENDMENT NO. 7
AND LIMITED WAIVER TO LOAN AND SECURITY AGREEMENT
     This Amendment No. 7 and Limited Waiver to Loan and Security Agreement
(this “Amendment”) is entered into this 17th day of November, 2009, by and among
Rae Systems Inc., a Delaware corporation (“Borrower”), and Silicon Valley Bank
(“Bank”). Capitalized terms used herein without definition shall have the same
meanings given them in the Loan Agreement (as defined below).
Recitals
     A. Borrower (a) is in default under Section 6.8(c) of the Loan Agreement
for failing to maintain a trailing 2-quarter EBITDA of at least $(2,250,000) for
the period from April 1, 2009 through September 30, 2009 (the “Existing
Default”), and (b) desires that Bank (i) provide the limited waiver of the
Existing Default, and (ii) amend the Loan Agreement upon the terms and
conditions more fully set forth herein.
     B. Subject to the representations and warranties of Borrower herein and
upon the terms and conditions set forth in this Amendment, Bank is willing to
provide the conditional limited waiver contained herein and so amend the Loan
Agreement.
AGREEMENT
     NOW, THEREFORE, in consideration of the foregoing Recitals and intending to
be legally bound, the parties hereto agree as follows:
     1. Events of Default and Limited Waiver. Borrower acknowledges that there
exists the Event of Default under Section 6.8(c) of the Loan Agreement due to
the Existing Default. Bank hereby agrees, subject to the terms of Section 5
hereof, to waive the Existing Default.
     2. Amendments to Loan Agreement.
          2.1 Section 6.8 of the Loan Agreement. Section 6.8 of the Loan
Agreement is amended and restated in its entirety and replaced with the
following:
          6.8 Financial Covenants.
          Borrower shall maintain at all times, unless otherwise noted, on a
consolidated basis with respect to Borrower and its Subsidiaries:
          (a) Quick Ratio. Tested as of the last day of each fiscal quarter, a
ratio of Quick Assets to Current Liabilities of at least 1.0 to 1.0.
Furthermore, Borrower shall maintain at all times, at least $2,000,000 of total
cash in deposit accounts maintained in the name of Borrower in the United States
with Bank.
          (b) Trailing 2-Quarter minimum EBITDA. Maintain, measured as of the
end of each fiscal quarter during the following periods, EBITDA of at least the
following:

 

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          Period   Minimum EBITDA  
July 1, 2009 through December 31, 2009
  $ (2,000,000 )
October 1, 2009 through March 31, 2010
  $ (1,500,000 )
January 1, 2010 through June 30, 2010
  $ (1,000,000 )

          2.2 Section 8.11 of the Loan Agreement is amended and restated in its
entirety and replaced with the following:
          8.11 Compliance. Borrower or any of its Subsidiaries (a) violates or
fails to comply with the Foreign Corrupt Practices Act and/or any related
statutes and regulations and such violation or failure results in either (i) the
imposition of potential monetary penalties in excess of $3,500,000 in the
aggregate or material criminal sanctions, or (ii) debarment from doing business
resulting in a loss of $1,000,000 of revenue in the aggregate or (b) uses any
Credit Extension for the settlement or proposed settlement with respect to
clause (a) above.
          2.3 Section 13 (Definitions). The following term and its definition is
amended to read in their entirety as follows:
          “EBITDA” shall mean (a) Net Income, plus to the extent deducted in the
calculation of Net Income, (b) interest expense, plus (c) depreciation expense
and amortization expense, plus (d) income tax expense, plus (e) non-cash stock
compensation expense.
          2.4 Exhibit D, “Compliance Certificate” of the Loan Agreement is
hereby amended by deleting it in its entirety and replacing it with Exhibit A
attached hereto.
     3. Borrower’s Representations And Warranties. Borrower represents and
warrants that:
          (a) immediately upon giving effect to this Amendment, (i) the
representations and warranties contained in the Loan Documents are true,
accurate and complete in all material respects as of the date hereof (except to
the extent such representations and warranties relate to an earlier date, in
which case they are true and correct as of such date), and (ii) no Event of
Default has occurred and is continuing;
          (b) Borrower has the corporate power and authority to execute and
deliver this Amendment and to perform its obligations under the Loan Agreement,
as amended by this Amendment;
          (c) the certificate of incorporation, bylaws and other organizational
documents of Borrower delivered to Bank on the Effective Date remain true,
accurate and complete and have not been amended, supplemented or restated and
are and continue to be in full force and effect;
          (d) the execution and delivery by Borrower of this Amendment and the
performance by Borrower of its obligations under the Loan Agreement, as amended
by this Amendment, have been duly authorized by all necessary corporate action
on the part of Borrower;

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          (e) this Amendment has been duly executed and delivered by the
Borrower and is the binding obligation of Borrower, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors’ rights; and
          (f) as of the date hereof, it has no defenses against the obligations
to pay any amounts under the Obligations. Borrower acknowledges that Bank has
acted in good faith and has conducted in a commercially reasonable manner its
relationships with such Borrower in connection with this Amendment and in
connection with the Loan Documents.
          Borrower understands and acknowledges that Bank is entering into this
Amendment in reliance upon, and in partial consideration for, the above
representations and warranties, and agrees that such reliance is reasonable and
appropriate.
     4. Limitation. The limited waiver and amendments set forth in this
Amendment shall be limited precisely as written and shall not be deemed (a) to
be a forbearance, waiver or modification of any other term or condition of the
Loan Agreement or of any other instrument or agreement referred to therein or to
prejudice any right or remedy which Bank may now have or may have in the future
under or in connection with the Loan Agreement or any instrument or agreement
referred to therein; (b) to be a consent to any future amendment or
modification, forbearance or waiver to any instrument or agreement the execution
and delivery of which is consented to hereby, or to any waiver of any of the
provisions thereof; or (c) to limit or impair Bank’s right to demand strict
performance of all terms and covenants as of any date. Except as expressly
amended hereby, the Loan Agreement shall continue in full force and effect.
     5. Effectiveness. This Amendment shall become effective upon the
satisfaction of all the following conditions precedent:
          5.1 Amendment. Borrower and Bank shall have duly executed and
delivered this Amendment to Bank;
          5.2 Payment of Loan Fee. Borrower shall have paid Bank a commitment
fee of $5,000; and
          5.3 Payment of Bank Expenses. Borrower shall have paid all Bank
Expenses (including all reasonable attorneys’ fees and reasonable expenses)
incurred through the date of this Amendment.
     6. Counterparts. This Amendment may be signed in any number of
counterparts, and by different parties hereto in separate counterparts, with the
same effect as if the signatures to each such counterpart were upon a single
instrument. All counterparts shall be deemed an original of this Amendment.
     7. Integration. This Amendment and any documents executed in connection
herewith or pursuant hereto contain the entire agreement between the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, offers and negotiations, oral or written, with respect thereto
and no extrinsic evidence whatsoever may be introduced in any judicial or
arbitration proceeding,

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if any, involving this Amendment; except that any financing statements or other
agreements or instruments filed by Bank with respect to Borrower shall remain in
full force and effect.
     8. Governing Law; Venue. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
Borrower and Bank each submit to the exclusive jurisdiction of the State and
Federal courts in Santa Clara County, California.
     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.

                      Borrower:       Rae Systems Inc.
a Delaware corporation
 
                   
 
      By:   /s/ Randall K. Gausman                           Printed
Name: Randall K. Gausman
 
          Title:   Chief Financial Officer
 
                    Bank:       Silicon Valley Bank
 
                   
 
      By:   /s/ Tom Smith                           Printed Name: Tom Smith
 
          Title:   Managing Director

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EXHIBIT A
EXHIBIT D
COMPLIANCE CERTIFICATE

      TO: SILICON VALLEY BANK   Date:                                       
FROM: RAE SYSTEMS INC.    

The undersigned authorized officer of RAE Systems Inc. (“Borrower”) certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the “Agreement”), (1) Borrower is in complete compliance for
the period ending ______________with all required covenants except as noted
below, (2) there are no Events of Default, (3) all representations and
warranties in the Agreement are true and correct in all material respects on
this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed
all required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of
the Agreement, and (5) no Liens have been levied or claims made against Borrower
or any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to Bank.
Attached are the required documents supporting the certification. The
undersigned certifies that these are prepared in accordance with generally GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The undersigned acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the terms of the Agreement, and that compliance
is determined not just at the date this certificate is delivered. Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.
Please indicate compliance status by circling Yes/No under “Complies” column.

          Reporting Covenant   Required   Complies
Quarterly financial statements (along with Borrower
prepared consolidating financial statements) with
Compliance Certificate
  Quarterly within earlier of 5 days of filing 10Q or 50 days of quarter end  
Yes     No
Annual financial statement (CPA Audited) + CC
  within earlier of 5 days of filing 10K or 90 days of FYE   Yes     No
8-K
  Within 5 days after filing with SEC   Yes     No
Borrowing Base Certificate A/R & A/P Agings and deferred revenue report
  within 30 days of each month   Yes     No
Projections
  Within 45 days of FYE   Yes     No
Cash balance report
  Within 30 days of end of month   Yes     No

              Financial Covenant   Required   Actual   Complies
Maintain at all times:
           
Tested as of the last day of each fiscal quarter, a Minimum Quick Ratio
Furthermore, Borrower shall maintain at all times, at least $2,000,000 of total
cash in deposit accounts maintained in the name of Borrower in the United States
with Bank.
  1.0:1.0   ______:1.0   Yes     No
Tested as of the end of each fiscal
  7/1/09-12/31/09 ($2,000,000)   $________   Yes     No
quarter during the following
  10/1/09-3/31/10 ($1,500,000)        
periods, a trailing 2-quarter minimum
EBITDA
  1/1/10-6/30/10 ($1,000,000)        

 

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     The following financial covenant analys[is][es] and information set forth
in Schedule 1 attached hereto are true and accurate as of the date of this
Certificate.
     The following are the exceptions with respect to the certification above:
(If no exceptions exist, state “No exceptions to note.”)
 
 
 

                              RAE SYSTEMS INC.     BANK USE ONLY
 
                           
 
        Received by:              
 
                           
 
              AUTHORIZED SIGNER            
 
                           
By:
        Date:                  
 
                     
 
                           
Name:
      Verified:                
 
                         
 
              AUTHORIZED SIGNER            
Title:
      Date:                  
 
                       
 
                                      Compliance Status:          Yes     No

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Schedule 1 to Compliance Certificate
Financial Covenants of Borrower
Dated: ____________________
I. Quick Ratio (Section 6.8(a))
Required: 1.00:1.00; Furthermore, Borrower shall maintain at all times, at least
$2,000,000 of total cash in deposit accounts maintained in the name of Borrower
in the United States with Bank.
Actual:

         
A.
  Aggregate value of Borrower’s consolidated unrestricted cash and cash
equivalents   $                    
 
       
B.
  Aggregate value of Borrower’s consolidated net billed accounts receivable  
$                    
 
       
C.
  Aggregate value of Borrower’s consolidated short and long term investments  
$                    
 
       
D.
  Quick Assets (the sum of lines A through C)   $                    
 
       
E.
  Aggregate value of Obligations to Bank   $                    
 
       
F.
  Aggregate value of Total Liabilities that mature within one year  
$                    
 
       
G.
  Current Liabilities (the sum of lines E and F)   $                    
 
       
H.
  Quick Ratio (line D divided by line G)                        

Is line H equal to or greater than 1.00:1:00?
                                No, not in compliance                     
                      Yes, in compliance
II. Trailing 2-Quarter Minimum EBITDA (Section 6.8(b))
Required: See chart below

          Period   Minimum EBITDA
July 1, 2009 through December 31, 2009
  $ (2,000,000 )
October 1, 2009 through March 31, 2010
  $ (1,500,000 )
January 1, 2010 through June 30, 2010
  $ (1,000,000 )

Actual:

         
A.
  Net Income   $                    
 
       
B.
  To the extent included in the determination of Net Income    

 

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  1. The provision for income taxes   $                    
 
       
 
  2. Depreciation expense   $                    
 
       
 
  3. Amortization expense   $                    
 
       
 
  4. Net interest expense   $                    
 
       
 
  5. non-cash stock compensation expense.   $                    
 
       
 
  6. The sum of lines 1 through 5   $                    

C. EBITDA (line A plus line B.6)
Is line C equal to or greater than the amounts referenced above?
                               No, not in compliance                     
                     Yes, in compliance

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