exv10w16






Exhibit 10.16




INDEMNITY AGREEMENT




     This Indemnity Agreement, dated as of May 1, 2009, is made by and between RAE Systems
Inc., a Delaware corporation (the “Company”), and Sigrun Hjelmquist (the “Indemnitee”).



RECITALS




     A. The Company and Indemnitee recognize the continued difficulty in obtaining
liability insurance for the Company’s directors, officers, employees and other agents, the
cost of such insurance and the general reductions in the coverage of such insurance;



     B. The Company and Indemnitee recognize the substantial increase in corporate
litigation in general, subjecting directors, officers, employees and other agents to
expensive litigation risks at the same time as the availability and coverage of liability
insurance has been severely limited;



     C. The Company desires to attract and retain the services of talented and experienced
individuals, such as Indemnitee, to serve as directors, officers, employees and agents of
the Company and its subsidiaries and wishes to indemnify its directors, officers, employees
and other agents to the maximum extent permitted by law;.



     D. Section 145 of the General Corporation Law of Delaware, under which the Company is
organized (“Section 145”), empowers the Company to indemnify its directors, officers,
employees and agents by agreement and to indemnify persons who serve, at the request of the
Company, as the directors, officers, employees or agents of other corporations or
enterprises, and expressly provides that the indemnification provided by Section 145 is not
exclusive.



     E. In order to induce Indemnitee to serve or continue to serve as a director, officer,
employee or agent of the Company and/or one or more subsidiaries of the Company free from
undue concern for claims for damages arising out of or related to such services to the
Company and/or one or more subsidiaries of the Company, the Company has determined and
agreed to enter into this Agreement with Indemnitee.



AGREEMENT




     NOW, THEREFORE, the Indemnitee and the Company hereby agree as follows:



     1. Definitions. As used in this Agreement:



          (a) “Agent” means any person who is or was a director, officer, employee or
other agent of the Company or a subsidiary of the Company; or is or was serving at
the request of, for the convenience of, or to represent the interests of the
Company or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise; or was a
director, officer, employee or agent of a foreign or domestic corporation which was
a predecessor corporation of the Company or a subsidiary of the Company, or was a
director, officer, employee or agent of another enterprise at



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the request of, for the convenience of, or to represent the interests of such predecessor
corporation.




          (b) “Board” means the Board of Directors of the Company.




          (c) A “Change in Control” shall be deemed to have occurred if (i) any
“person,” as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), other than a trustee or
other fiduciary holding securities under an employee benefit plan of the Company or
a corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company, is
or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 20% or more
of the total voting power represented by the Company’s then outstanding voting
securities, (ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board, together with any new directors
whose election by the Board or nomination for election by the Company’s
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the period or whose
election or nomination was previously so approved, cease for any reason to
constitute a majority of the Board, (iii) the stockholders of the Company approve a
merger or consolidation or a sale of all or substantially all of the Company’s
assets with or to another entity, other than a merger, consolidation or asset sale
that would result in the holders of the Company’s outstanding voting securities
immediately prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity) at least a
majority of the total voting power represented by the voting securities of the
Company or such surviving or successor entity outstanding immediately thereafter,
or (iv) the stockholders of the Company approve a plan of complete liquidation of
the Company.




          (d) “Expenses” shall include all out-of-pocket costs of any type or nature
whatsoever (including, without limitation, all attorneys’ fees and related
disbursements), actually and reasonably incurred by the Indemnitee in connection
with either the investigation, defense or appeal of a Proceeding or establishing or
enforcing a right to indemnification under this Agreement, or Section 145 or
otherwise; provided, however, that “Expenses” shall not include any judgments,
fines, ERISA excise taxes or penalties, or amounts paid in settlement of a
Proceeding.




          (e) “Independent Counsel” means a law firm, or a partner (or, if applicable,
member) of such a law firm, that is experienced in matters of corporation law and
neither currently is, nor in the past five years has been, retained to represent:
(i) the Company or the Indemnitee in any matter material to either such party or
(ii) any other party to or witness in the proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term “Independent
Counsel” shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or the Indemnitee in an action to determine the
Indemnitee’s rights under this Agreement.




          (f) “Proceeding” means any threatened, pending, or completed action, suit or
other proceeding, whether civil, criminal, administrative, or investigative.




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          (g) “Subsidiary” means any corporation of which more than 50% of the
outstanding voting securities is owned directly or indirectly by the Company, by
the Company and one or more other subsidiaries, or by one or more other
subsidiaries.




     2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to serve as an
Agent of the Company, at its will (or under separate agreement, if such agreement exists),
in the capacity the Indemnitee currently serves as an Agent of the Company, so long as the
Indemnitee is duly appointed or elected and qualified in accordance with the applicable
provisions of the Bylaws of the Company or any subsidiary of the Company or until such time
as the Indemnitee tenders his or her resignation in writing; provided, however, that
nothing contained in this Agreement is intended to create any right to continued employment
by the Indemnitee.



     3. Liability Insurance.



          (a) Maintenance of D&O Insurance. The Company hereby covenants and agrees
that, so long as the Indemnitee shall continue to serve as an Agent of the Company
and thereafter so long as the Indemnitee shall be subject to any possible
Proceeding by reason of the fact that the Indemnitee was an Agent of the Company,
the Company, subject to Section 3(c), shall promptly obtain and maintain in full
force and effect directors’ and officers’ liability insurance (“D&O Insurance”) in
reasonable amounts from established and reputable insurers, as more fully described
below.




          (b) Rights and Benefits. In all policies of D&O Insurance, the Indemnitee
shall qualify as an insured in such a manner as to provide the Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the Company’s
independent directors (as defined by the insurer) if the Indemnitee is such an
independent director; of the Company’s non-independent directors if the Indemnitee
is not an
independent director; of the Company’s officers if the Indemnitee is an
officer of the Company; or of the Company’s key employees, if the Indemnitee is not
a director or officer but is a key employee.




          (c) Limitation on Required Maintenance of D&O Insurance. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance
if the Company determines in good faith that: such insurance is not reasonably
available; the premium costs for such insurance are disproportionate to the amount
of coverage provided; the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit; the Indemnitee is covered by
similar insurance maintained by a subsidiary of the Company; the Company is to be
acquired and a tail policy of reasonable terms and duration is purchased for
pre-closing acts or omissions by the Indemnitee; or the Company is to be acquired
and D&O Insurance will be maintained by the acquirer that covers pre-closing acts
and omissions by the Indemnitee.




     4. Mandatory Indemnification. Subject to the terms of this Agreement:



          (a) Third Party Actions. If the Indemnitee is a person who was or is a party
or is threatened to be made a party to any Proceeding (other than an action by or
in the right of the Company) by reason of the fact that the Indemnitee is or was an
Agent of the Company, or by reason of anything done or not done by the Indemnitee
in any such capacity, the Company shall



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indemnify the Indemnitee against all Expenses and liabilities of any type whatsoever (including,
but not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of such Proceeding, provided the Indemnitee acted in
good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or Proceeding, had no reasonable
cause to believe his or her conduct was unlawful.




          (b) Derivative Actions. If the Indemnitee is a person who was or is a party
or is threatened to be made a party to any Proceeding by or in the right of the
Company by reason of the fact that the Indemnitee is or was an Agent of the
Company, or by reason of anything done or not done by the Indemnitee in any such
capacity, the Company shall indemnify the Indemnitee against all Expenses actually
and reasonably incurred by the Indemnitee in connection with the investigation,
defense, settlement or appeal of such Proceeding, provided the Indemnitee acted in
good faith and in a manner the Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company; except that no indemnification under
this subsection 4(b) shall be made in respect to any claim, issue or matter as to
which the Indemnitee shall have been finally adjudged to be liable to the Company
by a court of competent jurisdiction unless and only to the extent that the
Delaware Court of Chancery or the court in which such Proceeding
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such amounts which the Delaware
Court of Chancery or such other court shall deem proper.




          (c) Actions where Indemnitee is Deceased. If the Indemnitee is a person who
was or is a party or is threatened to be made a party to any Proceeding by reason
of the fact that the Indemnitee is or was an Agent of the Company, or by reason of
anything done or not done by the Indemnitee in any such capacity, and if, prior to,
during the pendency of or after completion of such Proceeding the Indemnitee is
deceased, the Company shall indemnify the Indemnitee’s heirs, executors and
administrators against all Expenses and liabilities of any type whatsoever to the
extent the Indemnitee would have been entitled to indemnification pursuant to this
Agreement were the Indemnitee still alive.




          (d) Certain Terminations. The termination of any Proceeding or of any claim,
issue, or matter therein by judgment, order, settlement, or conviction, or upon a
plea of nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself create a presumption that the Indemnitee did
not act in good faith and in a manner which the Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company or, with respect to any
criminal action or Proceeding, that the Indemnitee had reasonable cause to believe
that the Indemnitee’s conduct was unlawful.




          (e) Limitations. Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for Expenses or liabilities of any type
whatsoever for which payment is actually made to or on behalf of the Indemnitee
under an insurance policy, or under a valid and enforceable indemnity clause,
by-law or agreement.




     5. Indemnification for Expenses in a Proceeding in Which the Indemnitee is Partly
Successful. Notwithstanding any other provisions of this Agreement, to the extent that the



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Indemnitee is a party to or a participant in any Proceeding and is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the Company shall indemnify the Indemnitee against
(a) all Expenses actually and reasonably incurred by him or her or on his or her behalf in
connection with each successfully resolved claim, issue or matter and (b) any claim, issue or
matter related to any such successfully resolved claim, issue or matter. For purposes of this
section and without limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.



     6. Mandatory Advancement of Expenses. Subject to the terms of this Agreement and
following notice pursuant to Section 7(a) below, the Company shall
advance all Expenses reasonably incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of any Proceeding to which the Indemnitee is a
party or is threatened to be made a party by reason of the fact that the Indemnitee is or
was an Agent of the Company (unless there has been a final determination that the
Indemnitee is not entitled to indemnification for such Expenses) upon receipt of (i) an
undertaking by or on behalf of the Indemnitee to repay the amount advanced in the event
that it shall ultimately be determined that the Indemnitee is not entitled to
indemnification by the Company and (ii) satisfactory documentation supporting such
Expenses. Such advances are intended to be an obligation of the Company to the Indemnitee
hereunder and shall in no event be deemed to be a personal loan. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days following
delivery of a written request therefor by the Indemnitee to the Company. In the event that
the Company fails to pay Expenses as incurred by the Indemnitee as required by this
paragraph, Indemnitee may seek mandatory injunctive relief from any court having
jurisdiction to require the Company to pay Expenses as set forth in this paragraph. If
Indemnitee seeks mandatory injunctive relief pursuant to this paragraph, it shall not be a
defense to enforcement of the Company’s obligations set forth in this paragraph that
Indemnitee has an adequate remedy at law for damages.



     7. Notice and Other Indemnification Procedures.



          (a) Notice by Indemnitee. Promptly after receipt by the Indemnitee of notice
of the commencement of or the threat of commencement of any Proceeding, the
Indemnitee shall, if the Indemnitee believes that indemnification with respect
thereto may be sought from the Company under this Agreement, notify the Company in
writing of the commencement or threat of commencement thereof.




          (b) Insurance. If the Company receives notice pursuant to Section 7(a) hereof
of the commencement of a Proceeding that may be covered under D&O Insurance then in
effect, the Company shall give prompt notice of the commencement of such Proceeding
to the insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action to
cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a
result of such proceeding in accordance with the terms of such policies.



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          (c) Defense. In the event the Company shall be obligated to pay the Expenses
of any Proceeding against the Indemnitee, the Company shall be entitled to assume
the defense of such Proceeding, with counsel selected by the Company and approved
by the Indemnitee (which approval shall not be unreasonably withheld), upon the
delivery to the Indemnitee of written notice of its election so to do. After
delivery of such notice, and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
Proceeding, provided that (i) the Indemnitee shall have the right to employ
his or her own counsel in any such Proceeding at the Indemnitee’s expense; and (ii)
the Indemnitee shall have the right to employ his or her own counsel in any such
Proceeding at the Company’s expense if (A) the Company has authorized the
employment of counsel by the Indemnitee at the expense of the Company, (B) the
Indemnitee shall have reasonably concluded that there may be a conflict of interest
between the Company and the Indemnitee in the conduct of any such defense, (C)
after a Change in Control not approved by a majority of the members of the Board
who were directors immediately prior to such Change in Control, the employment of
counsel by Indemnitee has been approved by Independent Counsel, or (D) the Company
shall not, in fact, have employed counsel to assume the defense of such Proceeding.




     8. Right to Indemnification.



          (a) Successful Defense. To the extent the Indemnitee has been successful on
the merits or otherwise in defense of any Proceeding (including, without
limitation, an action by or in the right of the Company) in which the Indemnitee
was a party by reason of the fact that the Indemnitee is or was an Agent of the
Company at any time, the Company shall indemnify the Indemnitee against all
Expenses actually and reasonably incurred by the Indemnitee in connection with the
investigation, defense or appeal of such Proceeding.




          (b) Other Situations. In the event that Section 8(a) is inapplicable, the
Company shall indemnify the Indemnitee unless, and except to the extent that, it
shall have been determined by one of the methods listed in Section 8(c) hereof that
the Indemnitee has not met the applicable standard of conduct required to entitle
the Indemnitee to such indemnification.




          (c) Determination of Right to Indemnification. A determination of the
Indemnitee’s right to indemnification hereunder shall be made at the election of the Board by (i) a
majority vote of directors who are not parties to the Proceeding for which indemnification is being
sought, even though less than a quorum, or by a committee consisting of directors who are not
parties to the Proceeding for which indemnification is being sought, who, even though less than a
quorum, have been designated by a majority vote of the disinterested directors, or (ii) if there
are no such disinterested directors or if the disinterested directors so direct, by Independent
Counsel in a written opinion to the Board, a copy of which shall be delivered to the Indemnitee, or
(iii) by the stockholders of the Company, if the Board so directs, or (iv) by a panel of three
arbitrators, one of whom is selected by the Company, one of whom is selected by the Indemnitee and
the last of whom is selected by the first two arbitrators so selected; provided, however, that,
following any Change in Control not approved by a majority of the members of the Board who were
directors immediately prior to such Change in Control, such determination shall be made by an
Independent Counsel as specified in clause (ii) above or by a panel of arbitrators as specified in
clause (iv) above.




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          (d) Submission for Decision. As soon as practicable, and in no event later
than thirty (30) days after the Indemnitee’s written request for indemnification,
the Board shall select the method for determining the Indemnitee’s right to
indemnification. The Indemnitee shall cooperate with the person or persons or
entity making such determination with respect to the Indemnitee’s right to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not privileged
or otherwise protected from disclosure and which is reasonably available to the
Indemnitee and reasonably necessary to such determination. Any Independent
Counsel, member of the Board or stockholder of the Company shall act reasonably and
in good faith in making a determination regarding the Indemnitee’s entitlement to
indemnification under this Agreement.




          (e) Application to Court. If (i) the claim for indemnification or advancement
of Expenses is denied, in whole or in part, (ii) no disposition of such claim is
made by the Company within ninety (90) days after the request therefor, (iii) the
advancement of Expenses is not timely made pursuant to Section 6 of this Agreement
or (iv) payment of indemnification is not made pursuant to Section 5 of this
Agreement, the Indemnitee shall have the right to apply to the Delaware Court of
Chancery, the court in which the Proceeding is or was pending or any other court of
competent jurisdiction, for the purpose of enforcing the Indemnitee’s right to
indemnification (including the advancement of Expenses) pursuant to this Agreement.




          (f) Expenses Related to the Enforcement or Interpretation of this Agreement.
The Company shall indemnify the Indemnitee against all reasonable Expenses incurred
by the Indemnitee in connection with any hearing or proceeding under this Section 8
involving the Indemnitee and against all reasonable Expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement, unless a court of competent jurisdiction finds
that each of the claims and/or defenses of the Indemnitee in any such proceeding
was frivolous or made in bad faith.




     9. Exceptions. Any other provision herein to the contrary notwithstanding, the
Company shall not be obligated:



          (a) Claims Initiated by Indemnitee. To indemnify or advance Expenses to the
Indemnitee with respect to Proceedings or claims initiated or brought voluntarily
by the Indemnitee and not by way of defense, with a reasonable allocation where
appropriate, unless (i) such indemnification is expressly required to be made by
law, (ii) the Proceeding was authorized by the Board, (iii) such indemnification is
provided by the Company, in its sole discretion, pursuant to the powers vested in
the
Company under the General Corporation Law of Delaware or (iv) the Proceeding
is brought to establish or enforce a right to indemnification under this Agreement
or any other statute or law or otherwise as required under Section 145 in advance
of a final determination;




          (b) Lack of Good Faith. To indemnify the Indemnitee for any Expenses incurred
by the Indemnitee with respect to any Proceeding instituted by the Indemnitee to
enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by the Indemnitee in such
Proceeding was not made in good faith or was frivolous;




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          (c) Unauthorized Settlements. To indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of a Proceeding unless the Company consents to such
settlement, which consent shall not be unreasonably withheld;




          (d) Claims Under Section 16(b). To indemnify the Indemnitee for Expenses and
the payment of profits made from the purchase and sale (or sale and purchase) by
the Indemnitee of securities of the Company within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, as amended, or similar provisions of state
statutory law or common law; or




          (e) Payments Contrary to Law. To indemnify or advance Expenses to the
Indemnitee for which payment is prohibited by applicable law.




     10. Non-Exclusivity. The provisions for indemnification and advancement of Expenses
set forth in this Agreement shall not be deemed exclusive of any other rights which the
Indemnitee may have under any provision of law, the Company’s Certificate of Incorporation
or Bylaws, the vote of the Company’s stockholders or disinterested directors, other
agreements, or otherwise, both as to action in the Indemnitee’s official capacity and as to
action in another capacity while occupying the Indemnitee’s position as an Agent of the
Company, and the Indemnitee’s rights hereunder shall continue after the Indemnitee has
ceased acting as an Agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee. Notwithstanding the foregoing, this
Agreement supersedes the terms of any pre-existing indemnity agreement between the Company
and the Indemnitee.



     11. Permitted Defenses. It shall be a defense to any action for which a claim for
indemnification is made under this Agreement (other than an action brought to enforce a
claim for Expenses pursuant to Section 6 hereof, provided that the required undertaking has
been tendered to the Company) that the Indemnitee is not entitled to indemnification
because of the limitations set forth in Sections 4 and 9 hereof. Neither the failure of
the Company (including its Board of Directors) or an Independent Counsel to have made a
determination prior to the commencement of such enforcement action that indemnification of
the Indemnitee is proper in the
circumstances, nor an actual determination by the Company (including its Board of
Directors) or an Independent Counsel that such indemnification is improper, shall be a
defense to the action or create a presumption that the Indemnitee is not entitled to
indemnification under this Agreement or otherwise.



     12. Subrogation. In the event the Company is obligated to make a payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all of the
rights of recovery under an insurance policy or any other indemnity agreement covering the
Indemnitee, who shall execute all documents required and take all action that may be
necessary to secure such rights and to enable the Company effectively to bring suit to
enforce such rights (provided that the Company pays the Indemnitee’s costs and expenses of
doing so), including without limitation by assigning all such rights to the extent of such
indemnification or advancement of Expenses.



     13. Primacy of Indemnification. The Company hereby acknowledges that the Indemnitee
may have certain rights to indemnification, advancement of expenses or liability insurance
provided by a third-party investor and/or certain of its affiliates (collectively, the
“Fund



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Indemnitors”). The Company hereby agrees that (i) it is the indemnitor of first resort, i.e., its
obligations to the Indemnitee under this Agreement and any indemnity provisions set forth in its
Certificate of Incorporation, Bylaws or elsewhere (collectively, “Indemnity Arrangements”) are
primary, and any obligation of the Fund Indemnitors to advance expenses or to provide
indemnification for the same expenses or liabilities incurred by the Indemnitee is secondary and
excess, (ii) it shall advance the full amount of expenses incurred by the Indemnitee and shall be
liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in
settlement by or on behalf of the Indemnitee, to the extent legally permitted and as required by
any Indemnity Arrangement, without regard to any rights the Indemnitee may have against the Fund
Indemnitors, and (iii) it irrevocably waives, relinquishes and releases the Fund Indemnitors from
any claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any
kind arising out of or relating to any Indemnity Arrangement. The Company further agrees that no
advancement or indemnification payment by any Fund Indemnitor on behalf of the Indemnitee shall
affect the foregoing, and the Fund Indemnitors shall be subrogated to the extent of such
advancement or payment to all of the rights of recovery of the Indemnitee against the Company. The
Company and the Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of
the terms of this Section 13.



     14. Survival of Rights.



          (a) All agreements and obligations of the Company contained herein shall
continue during the period Indemnitee is an Agent of the Company and shall continue
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed Proceeding by reason of the fact that Indemnitee
was serving in the capacity referred to herein.




          (b) The Company shall require any successor to the Company (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or substantially
all of the business or assets of the Company, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the Company
would be required to perform if no such succession had taken place.




     15. Interpretation of Agreement. It is understood that the parties hereto intend this
Agreement to be interpreted and enforced so as to provide indemnification to the Indemnitee
to the fullest extent permitted by law, including those circumstances in which
indemnification would otherwise be discretionary.



     16. Severability. If any provision or provisions of this Agreement shall be held to
be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality
and enforceability of the remaining provisions of the Agreement (including, without
limitation, all portions of any paragraphs of this Agreement containing any such provision
held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the
fullest extent possible, the provisions of this Agreement (including, without limitation,
all portions of any paragraph of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable and to give effect to Section 15 hereof.



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     17. Modification and Waiver. No supplement, modification or amendment of this
Agreement shall be binding unless it is in a writing signed by both of the parties hereto.
No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.



     18. Notice. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given (a) upon delivery
if delivered by hand to the party to whom such notice or other communication shall have
been directed, (b) if mailed by certified or registered mail with postage prepaid, return
receipt requested, on the third business day after the date on which it is so mailed, (c)
one business day after the business day of deposit with a nationally recognized overnight
delivery service, specifying next day delivery, with written verification of receipt, or
(d) on the same day as delivered by confirmed facsimile transmission if delivered during
business hours or on the next successive business day if delivered by confirmed facsimile
transmission after business hours. Addresses for notice to either party shall be as shown
on the signature page of this Agreement, or to such other address as may have been
furnished by either party in the manner set forth above.



     19. Governing Law. This Agreement shall be governed exclusively by and construed
according to the laws of the State of Delaware as applied to contracts between Delaware
residents entered into and to be performed entirely within
Delaware. This Agreement is intended to be an agreement of the type contemplated by
Section 145 (f) of the General Corporation Law of Delaware.



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     20. Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original but all of which together shall
constitute one and the same Agreement. Only one such counterpart signed by the party
against whom enforcement is sought needs to be produced to evidence the existence of this
Agreement.



     The parties hereto have entered into this Indemnity Agreement effective as of the date first
above written.



	 	 	 	 	 
	 	The Company:




RAE Systems Inc.

 	 
	 	By:  	/s/ Robert Chen
 	 
	 	 	Robert Chen, President & CEO 	 



	 	 	 	 	 
	 	Indemnitee:

 	 
	 	/s/Sigrun Hjelmquist
 	 
	 	Sigrun Hjelmquist 	 



	 	 	 	 	 
	 	Address: 	 Modgunnvagen 12 

SE-182 55 

Djursholm, Sweden

 	 
	 	 	 
	 	 	 
	 	 	 
	 




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