Exhibit 10.19
AMENDMENT NO. 4 TO
LOAN AND SECURITY AGREEMENT
     This Amendment No. 4 to Loan and Security Agreement (this “Amendment”) is
entered into this 22nd day of May, 2008, 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 and Bank have entered into that certain Loan and Security
Agreement dated as of March 14, 2007 (as may be amended, restated, or otherwise
modified, the “Loan Agreement”), pursuant to which the Bank has extended and
will make available to Borrower certain advances of money.
     B. Borrower desires that Bank amend the Loan Agreement upon the terms and
conditions more fully set forth herein.
     C. Subject to the representations and warranties of Borrower herein and
upon the terms and conditions set forth in this Amendment, Bank is willing to 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. Amendments to Loan Agreement.
          1.1 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.
          (b) EBITDA. Maintain, measured as of the end of each fiscal quarter
during the following periods, EBITDA of at least the following:

          Period   Minimum EBITDA  
April 1, 2008 through June 30, 2008
  $  (100,000 )
April 1, 2008 through September 30, 2008
  $ 1,350,000  
July 1, 2008 through December 31, 2008
  $ 3,500,000  
 
    .  

 

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          1.2 Section 13 (Definitions). The following terms and their
definitions are amended to read in their entirety as follows:
          “Borrowing Base” is (a) $3,500,000 plus (b) 80% of Eligible Accounts,
as determined by Bank from Borrower’s most recent Borrowing Base Certificate;
provided, however, that Bank may decrease the foregoing percentages in its good
faith business judgment based on events (including without limitation, the
initial field audit examination and the on-going periodic examinations),
conditions, contingencies, or risks which, as determined by Bank, may adversely
affect Collateral.
          “Revolving Line Maturity Date” is March 13, 2009.
          1.3 Section 13 (Definitions). The definition of “Tangible Net Worth”
in Section 13 is hereby deleted.
          1.4 Section 13 (Definitions). Section 13 is hereby amended by
inserting the following definition in the appropriate place to preserve the
alphabetical order of the definitions in such section:
          “EBITDA” shall mean (a) Net Income, plus (b) interest expense, plus
(c) to the extent deducted in the calculation of Net Income, depreciation
expense and amortization expense, plus (d) income tax expense.
          1.5 Exhibit C, “Borrowing Base Certificate” of the Loan Agreement is
hereby amended by deleting it in its entirety and replacing it with Exhibit A
attached hereto.
          1.6 Exhibit D, “Compliance Certificate” of the Loan Agreement is
hereby amended by deleting it in its entirety and replacing it with Exhibit B
attached hereto.
     2. 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;
               (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

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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.
     3. Limitation. The amendment 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.
     4. Effectiveness. This Amendment shall become effective upon the
satisfaction of all the following conditions precedent:
          4.1 Amendment. Borrower and Bank shall have duly executed and
delivered this Amendment to Bank;
          4.2 Payment of Loan Fee. Borrower shall have paid Bank a loan fee of
$20,000 ($4,500 of which has already been paid with extension); and
          4.3 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.
     5. 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.
     6. 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, 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.
     7. Governing Law; Venue. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE

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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/ Ray Aguilar                   Printed Name: Ray Aguilar        
Title: Relationship Manager

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EXHIBIT A
EXHIBIT C
BORROWING BASE CERTIFICATE
 
Borrower: RAE Systems Inc.
Lender:  Silicon Valley Bank
Commitment Amount:     $15,000,000
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement (as amended
from time to time) between the undersigned and Silicon Valley Bank.

              ACCOUNTS RECEIVABLE        
1.
  Accounts Receivable Book Value as of                                          
  $    
 
         
2.
  Additions (please explain on reverse)   $    
 
         
3.
  TOTAL ACCOUNTS RECEIVABLE   $    
 
         
 
            ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)        
4.
  Amounts over 90 days due   $    
 
         
5.
  Balance of 50% over 90 day accounts   $    
 
         
6.
  Credit balances over 90 days   $    
 
         
7.
  Concentration Limits   $    
 
         
8.
  Foreign Accounts   $    
 
         
9.
  Governmental Accounts   $    
 
         
10.
  Contra Accounts   $    
 
         
11.
  Promotion or Demo Accounts   $    
 
         
12.
  Intercompany/Employee Accounts   $    
 
         
13.
  Disputed Accounts   $    
 
         
14.
  Deferred Revenue   $    
 
         
15.
  Other (please explain on reverse)   $    
 
         
16.
  TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS   $    
 
         
17.
  Eligible Accounts (#3 minus #16)   $    
 
         
18.
  ELIGIBLE AMOUNT OF ACCOUNTS ( 80% of #17)   $    
 
         
 
            BALANCES        
19.
  Maximum Loan Amount   $   15,000,000
20.
  Total Funds Available [Lesser of #19 or #18 plus $3,500,000]   $    
 
         
21.
  Present balance owing on Line of Credit   $    
 
         
22.
  Outstanding under Sublimits   $    
 
         
23.
  RESERVE POSITION (#20 minus #21 and #22)   $    
 
         

     The undersigned represents and warrants that this is true, complete and
correct, and that the information in this Borrowing Base Certificate complies
with the representations and warranties in the Loan and Security Agreement (as
amended from time to time) between the undersigned and Silicon Valley Bank.

 

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      COMMENTS:
 
   
By:
   
 
   
 
  Authorized Signer
 
   
Date:
   
 
   

          BANK USE ONLY   Received by:    
 
     
 
      authorized signer
Date:
         
Verified:
                authorized signer

Date:
          Compliance Status:           Yes       No

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EXHIBIT B
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
  When the outstanding Obligations Under Section 2.1 are equal to or greater
than $3,000,000 for longer than 3 consecutive Business Days within a calendar
month, monthly within 30 days   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
  1.0:1.0   ___:1.0   Yes   No  
Tested as of the last day of each fiscal quarter,
  4/1/08-6/30/08, ($100,000)   $                        Yes    No
a Minimum EBITDA 
  4/1/08-9/30/08, $1,350,000        

  7/1/08-12/31/08, $3,500,000        

 

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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
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

XV. EBITDA (Section 6.8(b))
Required: See chart below

          Period   EBITDA  
April 1, 2008 through June 30, 2008
  $ (100,000 )
 
       
April 1, 2008 through September 30, 2008
  $ 1,350,000  
 
       
July 1, 2008 through December 31, 2008
  $ 3,500,000  

Actual:

                 
A.
  Net Income   $        
 
             

 

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B.
  To the extent included in the determination of Net Income            
 
               
 
  1.      The provision for income taxes   $        
 
             
 
               
 
  2.      Depreciation expense   $        
 
             
 
               
 
  3.      Amortization expense   $        
 
             
 
               
 
  4.      Net interest expense   $        
 
             
 
               
 
  5.      The sum of lines 1 through 4   $        
 
             
 
               
C.
  EBITDA (line A plus line B.5)            
 
             

Is line C equal to or greater than the amounts referenced above?

             
 
                       No, not in compliance                            Yes, in
compliance

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