**Exhibit 10.6**PURCHASE AND SALE AGREEMENT     THISPURCHASE AND SALE AGREEMENT (this “Agreement”) is made as of this 9th day of November,2007 (the “Execution Date”), by and between RAE Systems, Inc., a Delaware corporation (“Seller”),and D.R. Stephens & Company, LLC, a California limited liability company (“Buyer”), or its assigneepursuant to Section 14.1.RECITALS:     A. Seller is the owner of the following property (collectively, the “Property”):          (1) All that certain real property commonly known as 3775 North First Street, located in theCity of San Jose (the “City”), County of Santa Clara, State of California, as legally described inExhibit “A” attached hereto, together with all easements, rights and privileges appurtenantthereto (collectively, the “Land”);          (2) The building located on the Land (the “Building”), together with all improvementsappurtenant thereto (the Building and such improvements being hereinafter collectively referred toas the “Improvements”);          (3) All fixtures, equipment, supplies licenses and other tangible and intangible personalproperty of every nature and description attached or pertaining to, or otherwise used in connectionwith, the Property, owned by Seller and located at the Property (the “Personalty”); provided,however, that the Personalty and the Property shall not include, and Seller shall retain ownershipof the items listed on Exhibit “D”, attached hereto; and          (4) To the extent transferable, all of Seller’s right, title and interest, if any, in and toall intangible assets of any nature relating to the Land, the Improvements and/or the Personalty tothe extent assignable, including, but not limited to (i) all warranties, guarantees, issued withrespect to the Personalty or the Improvements, (ii) all plans and specifications, drawings andprints relating to the Improvements, (iii) trademarks or trade names associated with theImprovements, and (iv) all licenses, permits, approvals, dedications and entitlements now orhereafter issued, approved or granted by governmental authorities in connection with the Land orthe Improvements.     B. Buyer and Seller have agree that, after Seller’s conveyance of the Property to Buyer,Seller shall remain in occupancy of the Property as a tenant, subject to the terms and conditionsprovided herein.     C. Seller is prepared to sell and convey the Property to Buyer and Buyer is prepared topurchase the Property from Seller, all for the purchase price and on the other terms and conditionshereinafter set forth.
 

 
AGREEMENT:     In consideration of the mutual covenants and agreements herein contained, and intending to belegally bound hereby, the parties hereto agree as follows:     **1. **Sale and Purchase. Seller hereby agrees to sell and convey the Property to Buyerand Buyer hereby agrees to purchase and accept the Property from Seller for the purchase price andsubject to the other terms and conditions set forth in this Agreement.     **2. **Purchase Price. The purchase price for the Property (the “Purchase Price”) shall beTwelve Million Seven Hundred Thousand and no/100 Dollars ($12,700,000.00), payable as follows:          **2.1**Deposit.               **2.1.1**Upon execution of this Agreement and the opening of escrow, Buyer shall deliver to FirstAmerican Title Insurance Company (the “Escrow Agent”) at its office at 1737 North First Street, SanJose, California 95112, attention: Liz Zankich, to be held in an escrow (the “Escrow”) anddelivered in accordance with this Agreement, an initial deposit in the amount of Two Hundred FiftyThousand and no/100 Dollars ($250,000.00) (the “Initial Deposit”). Unless Buyer elects, or isdeemed to have elected, to terminate this Agreement during the Due Diligence Period (definedbelow), then after the expiration of the Due Diligence Period the Initial Deposit shall be deemednon-refundable except as expressly provided in Section 5.8 or Article 9 or 10 below.               **2.1.2**Unless Buyer elects, or is deemed to have elected, to terminate this Agreement duringthe Due Diligence Period as provided in Section 5.2 below, then no later than 5:00 p.m. (PacificTime) of the last day of the Due Diligence Period Buyer shall deliver to Escrow an additionaldeposit in the amount of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) (the“Additional Deposit”) to indicate its election to waive Buyer’s condition set forth in Section 5.2and proceed to consummate the purchase of the Property. After the expiration of the Due DiligencePeriod, the Additional Deposit shall be deemed non-refundable except as expressly provided inSection 5.8 or Article 9 or 10 below. Upon Escrow Agent’s receipt of Buyer’s demand therefor on orbefore the expiration of the Due Diligence Period, Escrow Agent is hereby instructed, without theneed for further mutual instructions from the parties to immediately deliver the Initial Depositand all accrued interest thereon to Buyer and to cancel the Escrow.               **2.1.3**Each of the Initial Deposit and the Additional Deposit (collectively, the “Deposit”)shall be deposited into the Escrow in the form of cash, certified check, bank cashier’s check, wiretransfer or other form of readily available federally insured funds. The Deposit shall be held bythe Escrow Agent in an interest-bearing account and all interest earned on the Deposit while in theEscrow shall be deemed to be part of the Deposit and shall accrue to the benefit of Buyer (orSeller to the extent provided in Sections 5.8 and/or 10.1 below).               **2.1.4**At the Closing (as defined in Section 7.1), the Deposit shall be applicable to thePurchase Price.
 

 
          **2.2**Remainder of Purchase Price. At the Closing, Buyer shall deliver to the EscrowAgent, in cash, certified check, bank cashier’s check, wire transfer, or other form of readilyavailable federally insured funds, an amount equal to the Purchase Price less the Deposit plusinterest earned, if any, together with Buyer’s share of closing costs and prorations due andpayable by Buyer in accordance with this Agreement. The Purchase Price, subject to adjustments andapportionments set forth herein, shall be transferred through the Escrow on the Closing Date to theorder or account of Seller or such other person as Seller may designate in writing.          **2.3**Lease-Back. At the Closing, Buyer and Seller shall execute and deliver throughEscrow a lease for Seller’s continued occupancy of the Property as a tenant thereof, which leaseshall be in the form attached hereto as Exhibit “F”, attached hereto (the “Lease”).     **3. **Seller’s Representations, Warranties and Covenants. Seller represents, warrants andacknowledges to Buyer and covenants with Buyer as follows:          **3.1**Authority. Seller is duly organized, validly existing and in good standing underthe laws of the State of California and all documents executed by Seller shall be valid, legal andbinding obligations of Seller. No consent of any third party is required in order for Seller toperform any of its obligations hereunder.          **3.2**No conflict. This Agreement, and Seller’s sale of the Property hereunder, do notviolate any terms or provisions of any contract to which Seller is a party.          **3.3**Contracts. Seller shall deliver to Buyer copies of all material construction,service, supply, utilities, maintenance or other agreements relating to the ownership, operationand maintenance of the Land and the Improvements (but not including contracts relating to Seller’suse and occupancy thereof in connection with the operation of its business) which are currently inforce with respect to the Property (collectively, the “Contracts”). To Seller’s actual knowledge,the items delivered to Buyer pursuant to this Section 3.3 shall be accurate and complete copies ofall of the Contracts affecting the Property. To Seller’s actual knowledge, except for theContracts, there are no other agreements relating to the ownership, operation and maintenance ofthe Land and the Improvements (but not including contracts relating to Seller’s use thereof inconnection with the operation of its business) which affect or will affect or which are or will beobligations of Buyer, the Property or the Improvements after the Closing. To Seller’s actualknowledge, there is no current default or breach under the terms and provisions of any of theContracts. On or before the Closing, Seller shall terminate all management and brokerage agreementsaffecting the Property, if any. Pursuant to the terms and conditions of the Lease Seller shallcontinue to perform regular maintenance, repairs and upkeep of the Property, and therefore Buyeragrees that Seller shall keep all of the Contracts in place after the Closing and shall not assignany such Contracts to the Buyer at Closing.          **3.4**Leases. Seller has not leased or licensed the Property to a third party, and thereare no other parties occupying, or with a right to occupy, the Property. Seller is the onlyoccupant of the Property.
 

 
          **3.5**Documents. Within five (5) days after the Execution Date, Seller shall deliver ormake available to Buyer, to the extent in Seller’s possession, copies of the types of documentslisted on Exhibit “E” attached hereto respecting Seller’s ownership and operation of theProperty (the “Property Documents”). To Seller’s actual knowledge, without inquiry, the itemsdelivered to Buyer pursuant to this Section 3.5 shall be accurate and complete copies of all of theProperty Documents affecting the Property. From and after the Execution Date, Seller also shallmake available to Buyer, in Seller’s office, all of Seller’s non-confidential books and recordswith respect to the Property.          **3.6**Maintenance of Property; New Leases. Seller shall maintain the Property in thecondition existing on the date hereof, reasonable wear and tear excepted. During the period fromthe Execution Date to the earlier of the Closing or termination of this Agreement, Seller shall notenter into any leases, contracts or other agreements or understandings which would be binding onthe Property after the Closing or result in any obligation or liability to Buyer upon or afterBuyer’s purchase of the Property, unless Buyer provides its written consent to Seller entering intosuch agreements, which consent Buyer may withhold in its sole and absolute discretion.          **3.7**Marketing of Property. In consideration of Buyer’s entering into this Agreementand undertaking its investigation of the Property, from the Execution Date through the Closing Date(or such earlier date on which this Agreement may be terminated as provided herein), Seller shallnot market the Property for sale to third parties, and shall not accept, negotiate or otherwisepursue any unsolicited offers for the Property which Seller may receive during such period.          **3.8**Litigation. There is no claim, action, litigation, arbitration or other proceedingpending against the Property or against Seller which relates to the Property or the transactionscontemplated hereby and, to Seller’s actual knowledge, there is currently no governmentalinvestigation, threatened litigation or arbitration proceedings relating to the Property, or toSeller relating to the Property or the transactions contemplated hereby.          **3.9**Condemnation. There are no pending or, to Seller’s actual knowledge, contemplatedcondemnation or annexation proceedings affecting the Property or any part thereof.          **3.10**Compliance with Laws. Seller has not received any notice of any violation, and toSeller’s actual knowledge, without inquiry, the Property is not in violation of any law, ordinance,regulation, order or requirement applicable to the Property including without limitation,requirements imposed under any recorded covenants, conditions, restrictions, easements or otherrights affecting the Property.          **3.11**Knowledge. When used in this Article, “Seller’s actual knowledge” shall belimited to the actual knowledge of Rudy Mui. Seller represents and warrants that Rudy Mui is theindividual employed by Seller having the most extensive personal knowledge regarding themanagement, use and operation of the Property. Rudy Mui has not undertaken any special duty ofinvestigation or inquiry with respect to the subject matter of the representations and warrantiescontain in this Article.
 

 
          **3.12**Survival. The representations and warranties expressly set forth in this Section3 shall survive for a period of one (1) year after the Close of Escrow.     **4. **Buyer’s Representations, Warranties and Covenants. Buyer hereby represents,warrants and acknowledges to Seller and covenants with Seller as follows:          **4.1**Authority. Buyer has the power and authority to enter into and to perform all ofBuyer’s obligations pursuant to this Agreement and to purchase the Property on the terms andconditions set forth herein. No consent of any other party is required in order for Buyer toperform any of its obligations hereunder.          **4.2**No Conflict. This Agreement and Buyer’s purchase of the Property hereunder do notviolate any material terms or provisions of any contract to which Buyer is a party.          **4.3**Confidentiality. Until the Closing Date shall occur, Buyer shall keep inconfidence and not disclose any information or documents it receives from Seller or the terms andconditions of this Agreement to any person, firm or entity without the prior written authorizationof Seller, except that the information may be disclosed to (i) Buyer’s partners, directors,officers, existing and potential financial sources, assignees, lawyers, consultants, andrepresentatives, including Buyer’s Agents (as defined in Section 5.2.1 below) as needed to enableBuyer to complete its obligations or exercise its rights hereunder, subject to the confidentialityrequirements of this Section 4.3, or (ii) as required by law or by regulatory or judicial process.The provisions of this paragraph shall not apply to any information or documents that are alreadyin the public domain.          **4.4**“AS IS” Purchase. Other than as expressly set forth in this Agreement, (a) Buyeracknowledges and agrees that Buyer is acquiring the Property in its “AS IS” condition, WITH ALLFAULTS, IF ANY, AND WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, and (b) neither Seller nor anyagents, representatives, or employees of Seller have made any representations or warranties, director indirect, oral or written, express or implied, to Buyer or Buyer’s Agents with respect to thecondition of the Property, its fitness for any particular purpose, or its compliance with any laws,and Buyer is not aware of and does not rely upon any such representation. Buyer acknowledges thatthe Due Diligence Period will have afforded Buyer the opportunity to make such inspections (or havesuch inspections made by consultants) as it desires of the Property and all factors relevant to itsuse, including, without limitation, the interior, exterior, and structure of any improvements onthe Property, the condition of soils and subsurfaces, and the status of all zoning, permitting andother entitlements relevant to the use or contemplated use of the Property. Buyer acknowledges thatduring the Due Diligence Period Buyer and Buyer’s Agents will independently and with the assistanceof Buyer’s professional advisors and consultants undertake whatever non invasive studies, tests andinvestigation Buyer desires to conduct relating to the Property (including, without limitation,economic reviews, engineering analyses, environmental analyses and analyses of the records of anygovernmental or quasi-governmental entity having jurisdiction over the Property). Except asotherwise provided herein, Buyer is relying solely on its own investigation as to the Property andits value and is assuming the risk that adverse physical, economic or other conditions (including,without limitation, adverse environmental conditions and the status of compliance with the
 

 
requirements of the Americans with Disabilities Act of 1990) may not have been revealed bysuch investigation. Buyer agrees that the Property is to be sold to and accepted by Buyer, atClosing, in the condition it is in at the end of the Due Diligence Period “AS-IS.”          **4.5**Release of Claims.                    **(a) **Except for the representations and warranties expressly provided in this Agreement, fromand after the Closing, Buyer hereby completely releases and forever discharges Seller and Seller’spartners, affiliates, employees, successors, assigns, heirs, agents, and representatives(collectively, the “Indemnitees”) from and against all claims, liabilities, demands, judgments,damages, losses, and costs (collectively, “Claims”) arising from or related to the following: (i)any Hazardous Materials in, on, beneath, discharged from, migrating from, discharged to ormigrating to the Property, including the soil or groundwater thereof, at any time; and (ii) anyuse, handling, treatment, storage, transportation or disposal of Hazardous Materials at or from theProperty after the Closing; and (iii) any latent or patent defect affecting the Property(collectively, the “Released Matters”). As used in this Agreement, the term “Hazardous Materials”shall have the meaning set forth in Exhibit “B” attached hereto. In connection with suchwaiver and relinquishment, Buyer acknowledges that it is aware that it hereafter may discoverClaims or facts in addition to or different from those which it now knows or believes to exist withrespect to the Released Matters, but that it is Buyer’s intention to fully, finally and forever tosettle and release all of the Released Matters in accordance with the provisions of this Section4.5, and the release set forth herein shall be and remain in effect as a full and complete releasenotwithstanding the discovery or existence of any such additional or different Claims or facts. Theforegoing release of Claims shall be binding on Buyer and all subsequent owners, lessees and othertransferees of the Property.                    **(b) **In connection with Section 4.5(a) above, Buyer expressly waives the benefits of Section1542 of the California Civil Code which provides as follows:“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOTKNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THERELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS ORHER SETTLEMENT WITH THE DEBTOR.”Buyer’s Initials                          **5. **Conditions of Buyer’s Obligations. The Closing and Buyer’s obligations under thisAgreement to purchase the Property shall be subject to the satisfaction, prior to the timesprescribed herein, of the following conditions in Buyer’s sole and absolute discretion, with Buyerto retain the right to waive, in writing, in whole or in part, any of the following conditions(collectively, the “Contingencies”) at or prior to the time prescribed herein for approval ordisapproval by Buyer:          **5.1**Title Report. Within five (5) days after the Execution Date, Seller shall deliverto Buyer a preliminary title report prepared by First American Title Insurance Company (“TitleCompany”) with respect to the Property (the “Title Report”), together with complete
 

 
copies of all exceptions set forth therein. Buyer shall have until 5:00 p.m. (Pacific Time) onthe date which is twenty five (25) days after the Execution Date (or the next business day if suchdate falls on a weekend or holiday) (the “Due Diligence Period”) to notify Seller and the EscrowAgent, in writing, of Buyer’s disapproval of any exceptions or items shown thereon and to obtainthe commitment of the Title Company to issue the Title Policy (as defined in Section 5.5 below),including such endorsements as Buyer may reasonably request. If Buyer does not give Seller writtennotice of approval of any of the foregoing items within the prescribed time, the Title Report andthe supporting documents shall be deemed disapproved. Buyer may at any time during the DueDiligence Period object to any title matters affecting the Property by providing written notice ofsuch objections to Seller. Within five (5) days of receipt of Buyer’s notice of disapproval of anyof the foregoing items, Seller shall notify Buyer whether Seller is willing to remove any such itemwhich Buyer has disapproved (“Seller’s Cure Notice”). If Seller does not give Buyer written noticewithin the prescribed period of time, Seller shall be deemed to have elected not to remove any suchitem which Buyer has disapproved. If there are exceptions which Buyer has disapproved and whichSeller is not willing to remove at Seller’s expense, Buyer shall have until the end of the later of(A) the expiration of the Due Diligence Period, or (B) the fifth (5th) day followingBuyer’s receipt of Seller’s Cure Notice (or the expiration of the five (5) day period within whichSeller is to deliver a Seller’s Cure Notice if Seller fails to deliver a Seller’s Cure Notice) tonotify Seller in writing of Buyer’s election to either (a) waive its disapproval and approve suchexceptions, or (b) terminate this Agreement and receive a refund of the Deposit, with Buyer’sfailure to respond in writing within such period to be deemed Buyer’s election to terminate thisAgreement. If Buyer elects to waive its disapproval and approve any such exceptions, suchexceptions then shall be deemed to become Permitted Exceptions at the Closing. Buyer agrees thatthe parties’ failure to have resolved the scope of Permitted Exceptions pursuant to this Section5.1 prior to the expiration of the Due Diligence Period shall not effect any extension of the DueDiligence Period or the Closing Date absent both parties’ written agreement. If Seller providesBuyer with a Seller’s Cure Notice stating that Seller is willing to remove, cure or amelioratecertain items disapproved by Buyer, Seller shall cause all such items to be removed, cured orameliorated to the extent provided in Seller’s Cure Notice on or before the Closing Date. Seller’sfailure to timely remove, cure or ameliorate all such items as provided in Seller’s Cure Noticeshall not be a default hereunder so long as Seller has undertaken commercially reasonable effortsin good faith. As used herein, “Permitted Exceptions” shall mean those exceptions to the TitlePolicy approved by Buyer.          **5.2**Due Diligence Period.               **5.2.1**At all times during the “Due Diligence Period”, Buyer, its authorized agents, employees,consultants and representatives (“Buyer’s Agents”) shall have the right to enter the Property atreasonable times and at reasonable intervals to conduct and carry out any and all non invasiveinspections, tests, and studies as Buyer deems appropriate or Buyer’s lender requires. Buyer shallnot have the right to do any invasive testing of the Property or the Improvements located thereonwithout the prior written consent of Seller, which consent may be withheld in Seller’s reasonablediscretion. Buyer shall provide notice to Seller of its intent to enter the Property and provideSeller the right to accompany Buyer on such entry. Buyer shall indemnify and hold Seller harmlessfrom all claims and demands arising from Buyer’s entry upon the Property. Buyer shall indicate itsapproval of all the conditions and documents in Section 5.1 and this Section 5.2 and Buyer’selection to proceed with the Closing
 

 
by delivering, no later than 5:00 p.m. (Pacific Time) of the last day of the Due DiligencePeriod, (i) written notice of such approval (“Approval Notice”) to Seller, and (ii) the AdditionalDeposit to Escrow Agent. Buyer shall have the right to terminate this Agreement at any time priorto the expiration of the Due Diligence Period at Buyer’s sole and absolute discretion, for anyreason whatsoever or for no reason, by delivering to Seller written notice of Buyer’s election toterminate this Agreement no later than 5:00 p.m. (Pacific Time) of the last day of the DueDiligence Period (the “Termination Notice”). Buyer’s failure to deliver either an Approval Noticeor a Termination Notice within the Due Diligence Period shall conclusively be considered Buyer’sdisapproval of all the conditions and documents in Section 5.1 and this Section 5.2 and Buyer’selection to terminate this Agreement, in which case Buyer shall immediately receive a refund of theInitial Deposit.               **5.2.2**During the Due Diligence Period, Buyer and Buyer’s Agents shall be granted a right ofentry on the Property (i) to perform such non invasive engineering, environmental and geologicalreviews as Buyer shall deem appropriate, (ii) examine all structural and mechanical systems withinthe Improvements, (iii) examine the books and records of Seller relating to the management,ownership, use and operation of the Property, and (iv) conduct such other non invasive physicalinspections and make such other reports as Buyer shall deem appropriate for any purpose related toBuyer’s proposed use of the Property. Buyer’s right of entry upon the Property shall be subject to,and Buyer agrees to perform, each of the following conditions and covenants, all of which shallsurvive the expiration or termination of this Agreement and the delivery of the Deed (as defined inSection 7.2.1 below):                    **(a) **Buyer shall pay all costs, expenses, liabilities, and charges incurred by Buyer or relatedto Buyer’s entry;                    **(b) **Buyer, at Buyer’s sole cost, shall repair all damage or injury caused by Buyer or Buyer’sAgents in connection with any such inspection or entry and shall return the Property to thecondition existing prior to such entry;                    **(c) **Any entry upon the Property shall be upon reasonable notice to Seller, shall be atreasonable times and shall not unreasonably interfere with the Seller’s operations on the Property.Seller shall have the right to accompany Buyer and Buyer’s Agents during any entry upon theProperty and to require that Buyer and Buyer’s Agents comply with Seller’s safety and securityprocedures;                    **(d) **Buyer shall keep the Property free and clear of all liens arising out of the activities ofBuyer or Buyer’s Agents conducted upon the Property;                    **(e) **Buyer shall indemnify and hold Seller harmless from any lien, loss, claim, liability, orexpense, including attorneys’ fees and costs, arising out of or in connection with the activitiesof Buyer or Buyer’s Agents on or about the Property;                    **(f) **Buyer shall provide liability insurance, with a combined single limit of liability notless than One Million Dollars ($1,000,000), either under Buyer’s policy or such insurance providedby Buyer’s Agents. Seller shall be named as an additional
 

 
insured upon such insurance. Buyer shall provide proof of such insurance reasonably acceptableto Seller prior to, and as a condition of, any such entry; and                    **(g) **Prior to performing any invasive testing (i.e. testing involving drilling, boring or othersimilar physically intrusive investigation), Buyer shall obtain Seller’s written approval, whichapproval may be withheld in Seller’s reasonable discretion, with respect to the scope of workintended to be performed and shall provide Seller an opportunity to confer, either directly orthrough Seller’s consultants, with Buyer’s environmental consultants in order to determine whetherto permit any sampling or testing of surface or subsurface soils, surface water or ground water orto refine the scope of the work to be performed.               **5.2.3**Prior to the Closing, all information derived from Buyer’s tests and test results shall,to the extent permissible under existing law, remain confidential and not be disclosed to any partyother than as is necessary to consummate the transaction contemplated hereby or to exercise Buyer’srights hereunder including, without limitation, Buyer’s counsel and its consultants. Seller shallbe entitled to receive copies of all tests and test results generated by Buyer with respect to theProperty, including draft versions of the same, as and when received by Buyer. Seller’s rightsshall survive the termination of this Agreement. Buyer shall bear the costs and expenses withrespect to its feasibility studies hereunder, including, but not limited to, all environmentalmatters and investigations.          **5.3**Performance. Seller shall have performed, observed and complied with allcovenants, agreements and conditions required by this Agreement to be performed, observed andcomplied with on its part prior to or as of the Closing hereunder.          **5.4**Documents and Deliveries. All instruments and documents required on Seller’s partto effectuate the Closing, as set forth herein and the transactions contemplated hereby shall bedelivered to Buyer or the Escrow Agent, as required hereby, and shall be in form and substanceconsistent with the requirements herein.          **5.5**Title Policy. At the Closing, Title Company shall have delivered to Buyer either(a) a CLTA owner’s standard policy of title insurance (the “Title Policy”) including anyendorsements reasonably requested by Buyer, insuring Buyer’s fee simple title to the Property inthe amount of the Purchase Price subject only to the Permitted Exceptions, or (b) Title Company’sirrevocable commitment to issue such policy.          **5.6**Condition of Property. Subject to the terms and conditions of Article 9 below, thephysical condition of the Property shall be substantially the same on the day of Closing as on thedate of Buyer’s execution of this Agreement, reasonable wear and tear excepted.          **5.7**Accuracy of Representations. All of the representations and warranties of Sellercontained in this Agreement shall have been true and correct in all material respects when made,and shall be true and correct in all material respects on the date of Closing (as defined inSection 7.1 below) with the same effect as if made on and as of such date.          **5.8**Failure of Conditions. If any conditions set forth in this Article 5 are notsatisfied or waived in writing by Buyer at or prior to the times prescribed therein, then Buyer
 

 
shall have the option, exercisable by written notice to Seller at or prior to the Closing, ofdeclining to proceed with the Closing. In such event, except as expressly set forth herein, allrights, obligations and liabilities of Seller and Buyer under and pursuant to this Agreement shallterminate (except for any obligations or liabilities under this Agreement which specifically setforth that such obligations or liabilities shall survive the termination of this Agreement), andthe Escrow Agent shall, without further notice to or from any party, and without liabilitytherefor, cancel and terminate the Escrow. Upon such termination, the Deposit shall be paid toSeller to the extent it has become nonrefundable in accordance with this Agreement, unless thefailure of a condition is caused solely by Seller’s breach of a representation, warranty covenantor obligation of Seller arising under this Agreement, subject to Section 10.2 below (a “Seller’sBreach), in which event the Deposit shall be refunded to Buyer.          **5.9**Copies of Reports. In the event of termination of this Agreement, within three (3)days after such termination (i) Buyer shall promptly return to Seller all documentation deliveredby Seller to Buyer and (ii) unless the Closing does not occur because of Seller’s default underthis Agreement, Buyer shall provide copies to Seller of all reports and studies obtained ordeveloped by Buyer or Buyer’s consultants with respect to the Property at no cost to Seller to theextent not already provided under Section 5.2.3 above.     **6. **Conditions of Seller’s Obligations. The Closing and Seller’s obligations under thisAgreement to sell the Property shall be subject to the satisfaction, prior to the times prescribedherein, of the following conditions, with Seller to retain the right to waive in writing, in wholeor in part, any of the following conditions at or prior to the time prescribed herein for approvalor disapproval by Seller:          **6.1**Accuracy of Representations. All of the representations and warranties of Buyercontained in this Agreement shall have been true and correct in all material respects when made,and shall be true and correct in all material respects on the date of Closing with the same effectas if made on and as of such date.          **6.2**Performance. Buyer shall have performed, observed and complied with all materialcovenants, agreements and conditions required by this Agreement to be performed, observed andcomplied with on its part prior to or as of the Closing hereunder.          **6.3**Documents and Deliveries. All instruments and documents required on Buyer’s partto effectuate the Closing and the transactions contemplated hereby shall be delivered to Seller orthe Escrow Agent, as required hereby, shall be in form and substance consistent with therequirements herein, and all funds to be deposited into the Escrow pursuant hereto shall have beentimely deposited.          **6.4**Failure of Conditions. If any conditions precedent to Seller’s obligationshereunder are not timely satisfied or waived in writing by Seller, as set forth in this Article 6and including, but not limited to, timely delivery of the Deposit or other funds required to bedeposited by Buyer into the Escrow, then Seller shall have the option, exercisable by writtennotice to Buyer at or prior to the Closing, of declining to proceed with the Closing. In suchevent, except as expressly set forth herein, all obligations and liabilities of the parties underthis Agreement shall terminate (except for any obligations or liabilities under this Agreementwhich
 

 
specifically set forth that such obligations or liabilities shall survive the termination ofthis Agreement) and (a) all documentation delivered to Buyer pursuant hereto shall be returned toSeller, (b) unless the Closing does not occur because of Seller’s default under this Agreement, allthird party reports obtained by Buyer with respect to the Property shall be delivered to Seller atno cost to Seller, if requested by Seller, and (c) the Deposit shall be paid to Seller to theextent is has become nonrefundable in accordance with this Agreement.     **7. **Closing; Deliveries.          **7.1**Closing Date. The closing of the transaction described in this Agreement (the“Closing”) shall take place on the date which is fifteen (15) days after the expiration of the DueDiligence Period (or the next business day if such date falls on a weekend or holiday); provided,however, that the Closing Date shall in no event be later than December 20, 2007 (the “OutsideClosing Date”). Upon either party’s request, the other party shall confirm in writing the date onwhich the Due Diligence Period expires hereunder and the Closing Date. The Closing shall be deemedto occur as of the moment the Deed is recorded and the Purchase Price is disbursed to Seller.          **7.2**Seller’s Closing Deposits. At or prior to the Closing, Seller shall deposit thefollowing into the Escrow for recordation and/or delivery to Buyer at the Closing:               **7.2.1**Grant Deed. A grant deed in the form attached hereto as Exhibit “G”,duly executed and acknowledged by Seller and in proper form for recording (the “Deed”), subject tothe Permitted Exceptions.               **7.2.2**Bill of Sale. A bill of sale for the Personalty in the form attached hereto asExhibit “C.”               **7.2.3**Lease. Two (2) original counterparts of the Lease, in the form attached heretoas Exhibit “F.”               **7.2.4**FIRPTA. A certification and affidavit as required by the Foreign InvestorsProperty Tax Act, as amended, and the comparable provisions of California law.               **7.2.5**Other Documents. Such resolutions, authorizations, bylaws or othercorporate/partnership documents or agreements relating to Seller as may be reasonably requested.          **7.3**Buyer’s Closing Deposits. At or prior to the Closing, Buyer shall deposit into theEscrow for delivery to Seller at the Closing the following:               **7.3.1**Balance of Purchase Price. The balance of the Purchase Price in cash or by wiretransfer in the amount required under Article 2 hereof for delivery to Escrow Agent.               **7.3.2**Lease. Two (2) original counterparts of the Lease, in the form attached heretoas Exhibit “F.”
 

 
               **7.3.3**Other Documents. Such other instruments and documents as reasonably may berequired to effectuate this Agreement and consummate the transactions contemplated hereby.     **8. **Apportionments; Expenses.          **8.1**Apportionment of Taxes, Utilities and Operating Expenses. All real estate taxes,charges and any assessments affecting the Property and all charges for utilities, insurance andother operating expenses of the Property, if any, shall be prorated on a per diem basis as ofmidnight on the date before Closing. If any real estate taxes, charges or assessments or anycharges for utilities, insurance and other operating expenses of the Property have not been finallyassessed or billed to Seller as of midnight on the date before Closing, then the same shall beadjusted at Closing based upon the most recently issued bills therefor and shall be re-adjustedoutside of the Escrow when final bills are issued; provided, however, that to the extent suchProperty related expenses remain the responsibility of Seller under the Lease in its capacity as“Tenant” thereunder, such items shall not be prorated at Closing and shall instead continue to bepaid by Seller. On or prior to the Closing Date, the parties shall agree upon an estimated closingstatement or will approve estimated closing statements prepared by the Escrow Agent which shall setforth the prorations and credits provided for herein. If the prorations and credits made under suchclosing statement shall prove to be incorrect or incomplete for any reason, then either party shallbe entitled to an adjustment to correct the same; provided, however, that any adjustment shall bemade, if at all, within one hundred eighty (180) days after the Closing Date (except with respectto real property taxes, in which case such adjustment shall be made within thirty (30) days afterthe information necessary to perform such adjustment is available), and if a party fails to requestan adjustment by a written notice delivered to the other party within the applicable period setforth above (such notice to specify in reasonable detail the items within the closing statementthat such party desires to adjust and the reasons for such adjustment), then the prorations andcredits set forth in the closing statement shall be binding and conclusive against such party.          **8.2**Expenses. The expenses and costs of the transactions contemplated by thisAgreement shall be borne by the parties as follows, all of which obligations shall survive theClosing:               **8.2.1**Advisors. Subject to Section 14.10 hereof, each party will pay all its ownexpenses incurred in connection with this Agreement and the transactions contemplated hereby,including, without limitation, (a) all costs and expenses stated herein to be borne by such party,and (b) all of its own respective accounting, legal and appraisal fees.               **8.2.2**Seller’s Expenses. Seller shall pay at the Closing (a) the premium attributableto a CLTA title policy for Buyer, (b) fifty percent (50%) of all escrow fees and any city transfertaxes, and (c) all county transfer taxes.               **8.2.3**Buyer’s Expenses. Buyer shall pay at the Closing (a) all premiums for Buyer’stitle policy over and above a CLTA title policy and all endorsements, and (b) fifty percent (50%)of all escrow fees and any city transfer taxes.
 

 
               **8.2.4**Other Fees. All other costs shall be divided by the parties in accordance withthe custom of Santa Clara County.          **8.3**Possession. Possession of the Property shall be surrendered to Buyer at theClosing free and clear of any rights of possession of others save and except Seller’s continuedrights of occupancy under the Lease.     **9. **Casualty and Condemnation; Insurance.          **9.1**Threshold Amount for Termination Option. If, at any time prior to the date ofClosing, Improvements having a replacement value of Five Hundred Thousand Dollars ($500,000) ormore are destroyed or damaged as a result of fire or any other casualty whatsoever, or as a resultof the Property being condemned or taken by eminent domain proceedings by any public authority, theProperty’s value is reduced by Five Hundred Thousand Dollars ($500,000) or more, then, at Buyer’soption, to be exercised by written notice to Seller, this Agreement shall terminate, and theDeposit shall be returned to Buyer, and except as expressly set forth herein, neither party shallhave any further liability or obligation to the other hereunder. Buyer shall exercise suchtermination right, if at all, within fifteen (15) days after (i) receipt of notice from Selleradvising Buyer of such damage or taking, or (ii) discovery of such damage or taking.          **9.2**Allocation of Compensation. If there is any damage or destruction or condemnationor taking, as above set forth, and if (a) the resulting reduction in the value of the Property isless than Five Hundred Thousand Dollars ($500,000), or (b) Buyer elects not to terminate thisAgreement as provided above, then Buyer shall pay the Purchase Price in full at the Closing and theProperty shall belong to Buyer, provided that (i) in the case of a taking, all condemnationproceeds paid or payable to Seller shall be paid or assigned to Buyer at the Closing; or (ii) inthe case of a casualty, Seller shall assign to Buyer all rights to any insurance proceeds paid orpayable under the applicable insurance policies. In no event shall Seller have any obligation torestore any damage to the Property caused by or arising from a condemnation or casualty event, norshall Buyer have the right to terminate this Agreement as a result thereof other than as providedin Section 9.1 above.     **10. **Remedies for Buyer’s Default and Seller’s Default.          **10.1**Buyer’s Default. IN THE EVENT BUYER BREACHES OR FAILS TO PERFORM ITS OBLIGATIONTO PURCHASE THE PROPERTY UNDER THIS AGREEMENT, THEN SELLER SHALL, AS ITS SOLE REMEDY THEREFOR, BEENTITLED TO RECEIVE THE DEPOSIT MADE PURSUANT TO SECTION 2 HEREOF, INCLUDING ALL INTEREST EARNEDAND ACCRUED THEREON, AS LIQUIDATED DAMAGES (AND NOT AS A PENALTY) IN LIEU OF, AND AS FULLCOMPENSATION FOR, ALL OTHER RIGHTS OR CLAIMS OF SELLER AGAINST BUYER BY REASON OF SUCH DEFAULT.THEREUPON THIS AGREEMENT SHALL TERMINATE AND THE PARTIES SHALL BE RELIEVED OF ALL FURTHEROBLIGATIONS AND LIABILITIES HEREUNDER, EXCEPT FOR THOSE OBLIGATIONS WHICH EXPRESSLY SURVIVE CLOSINGOR TERMINATION OF THIS AGREEMENT. BUYER AND SELLER ACKNOWLEDGE THAT THE DAMAGES TO SELLER RESULTINGFROM BUYER’S BREACH WOULD BE DIFFICULT, IF NOT IMPOSSIBLE TO ASCERTAIN WITH ANY
 

 
ACCURACY, AND THAT THE LIQUIDATED DAMAGE AMOUNT SET FORTH IN THIS SECTION REPRESENTS BOTHPARTIES’ EFFORTS TO APPROXIMATE SUCH POTENTIAL DAMAGES. NOTWITHSTANDING THE FOREGOING, OR ANY OTHERPROVISION TO THE CONTRARY, THIS SECTION 10.1 SHALL IN NO WAY LIMIT OR RESTRICT SELLER’S RECOVERYUNDER SECTION 5.2.2 ABOVE AND/OR SECTION 14.10 BELOW.                     RS                  Seller’s Initials                   LS                  Buyer’s Initials          **10.2**Seller Breach Before Closing. In the event that the Closing does not occur as aresult of a Seller’s Breach which is not cured by Seller within five (5) days after written noticefrom Buyer to Seller of such Seller’s Breach, Buyer shall be entitled to (a) bring an action forspecific performance if filed and served upon Seller within sixty (60) days after the occurrence ofsuch alleged breach, or (b) terminate this Agreement, obtain a refund of the Deposit, if made, andpursue any remedies at law to which it may be legally entitled; provided, however, that (i)Seller’s liability for any such Seller’s Breach shall be limited to claims for which the damagesare not less than Fifty Thousand Dollars ($50,000) and shall be subject to an aggregate maximum sumof Five Hundred Thousand Dollars ($500,000), and (ii) Seller shall in no event have any liabilityfor matters disclosed to Buyer in any documents and information produced for Buyer pursuant to thisAgreement or discovered by Buyer prior to termination of this Agreement, and (iii) Seller shallhave no liability for any such Seller’s Breach unless such damage claim is expressly asserted byBuyer in an action filed and served on Seller within one (1) year following the termination of theAgreement.          **10.3**Seller Breach After Closing. In the event the Closing does occur and Buyerdiscovers a Seller’s Breach, (a) Seller’s liability for a Seller’s Breach shall be limited toclaims for which the damages are not less than Fifty Thousand Dollars ($50,000) and which shall besubject to an aggregate maximum of Five Hundred Thousand Dollars ($500,000), (b) Seller shall in noevent have any liability for matters disclosed to Buyer in documents produced or made available toBuyer by Seller or discovered by Buyer prior to the Closing if Buyer elects to proceed to closethis transaction notwithstanding the disclosure or discovery of such matters prior to the Closing,and (c) Seller shall have no liability for any Seller’s Breach unless such damage claim is assertedby Buyer in an action filed and served on Seller within one (1) year following the Closing.     **11. **Further Assurances. Seller and Buyer each agrees to perform such other acts, andto execute, acknowledge and deliver, prior to, at or subsequent to the Closing, such otherinstruments, documents and other materials as the other may reasonably request and as shall benecessary in order to effect the consummation of the transactions contemplated hereby.     **12. **Notices. All notices and other communications provided for herein shall be inwriting and shall be sent to the address set forth below (or such other address as a party mayhereafter designate for itself by notice to the other parties as required hereby) of the party forwhom such notice or communication is intended:          If to Seller:
 

 
RAE Systems, Inc.